Fund Sales into the US with Non-Recourse Invoice Factoring
Bankers Trade Financing & US Import Financing
Finance Foreign Sales into the US
Expanding into the United States (US) market through a foreign subsidiary as an overseas entrepreneur or emerging business owner provides excellent growth opportunities and a way to mitigate risk. However, the ability to multiply sales and increase enterprise value in the US often comes with significant capital or financing needs. But obtaining A/R Financing or purchase order financing for your US subsidiary can be difficult from traditional banks, even if you have creditworthy customers.
Obtaining the funding to launch expansion projects into the American markets is a complex process that involves significant cash reserves to manage operations and expansions costs. It is also difficult to forecast how the business will accelerate and how external forces will impact cash flow. Thus, trade financing and factoring into the US are flexible products if your business is lumpy with both small and large orders.
Accordingly, overseas entrepreneurs commonly seek significant investments to open a foreign subsidiary in the USA due to capital constraints with much difficulty.
A standard solution to cash flow shortages or poor projections from analysts is to obtain A/R financing. Invoice Financing is the process of getting a line of credit or funds to invest in business activities from banks or other conventional lenders. Hence, companies turn to A/R Factoring from Bankers Factoring for myriad reasons.
Obtaining Financing is a Major Obstacle
Securing working capital for a foreign parent company and its US subsidiary is a significant challenge. That’s because US local banks, lenders, or finance companies may evaluate the overseas entity as risky or not creditworthy. Also, the home country may not have the credit facility to facilitate expansion for a US subsidiary.
There are many reasons why US-based financial and lending institutions have complex qualifying criteria for new subsidiaries. Thus, companies without US-based personnel and limited financial statements will find it difficult to obtain a large enough credit facility.
What is the biggest working capital problem?
Commercial sales in the US have payment terms of 90 days quite often. Customers will pay on net 60, or 90-day terms after products or services delivery. But during the waiting period for payment, the business still needs to operate and meet sales and growth plans obligations. However, credit terms are customary practice with establishing financial institutions and credit services.
Emerging businesses as US subsidiaries have challenges facilitating growth plans due to the costs of providing products and services. The cash burden presented for the foreign parent company creates cash flow constraints that are sustained for years.
Invoicing factoring or A/R factoring (financing) can help a US subsidiary with slow, paying commercial customers.
Factoring Improves Cash Flow
Invoicing factoring, a type of asset-based lending, is a financing solution for a US subsidiary of a foreign parent organization in most countries. Importers Exporters Companies with cash flow problems benefit from factoring that emerges from commercial sales and extended payments.
AR financing provides clients the means to offer credit terms to commercial customers and remove the gap of product and service delivery to payment.
Factoring increases your cash which can facilitate growth plans, operations, and other obligations. Moreover, it creates a foundation to accelerate US-based expansion truly and sustainably. We can also offer PO finance on pre-ordered goods in certain circumstances or after we have a degree of comfort with you as a client.
For more information about factoring, read “What is factoring?”
How does Factoring Work?
Invoice Factoring is a straightforward process especially compared to obtaining conventional financing. The factoring company purchases your accounts receivable (AR) as part of an asset sale. In exchange, you the client receive working capital in two installments.
The first installment is the cash advance of 80-90% of the invoice amount. The second installment is the remaining 10-20% invoice amount, less the factoring fee or the factoring rebate. The rebate happens after payment is received from your customer, also known as the account debtor. Factoring transactions typically follow these six steps:
- Your US subsidiary submits an invoice for financing
- Factoring company qualifies the batch of invoices (A/R to be purchased)
- The first 80-90% installment is wired to your bank account within 6-24 hours of qualification
- In 45-90 days, your customer pays the invoice in full
- Bankers Factoring settles the transaction (fees and rebate or earned reserve is calculated)
- The second installment is wired to your bank account (less factoring fees)
For detailed information about this solution, read “How factoring works”
The Benefits of Non-Recourse Invoice Factoring
Invoice factoring or accounts receivable factoring offers your US subsidiary several advantages, including:
- Immediate cash funding
- Export credit not available in your home countries export import bank
- Not Balance Sheet driven
- Accounts Receivable Financing is off Balance Sheet
- The process of invoice factoring is relatively simple
- Factoring is for companies of all sizes and scale
- More flexible type of financing
- Monetize letters of credit with Bankers Trade Financing
- Both a short term & long term solution
- Allows growing companies to offer longer payment terms
- Increased factoring lines – facility scales as you grow
- Quick deployment of funds-receive financing faster
- Minimize or eliminate bad debt
The owner-employees of Bankers Factoring have deep experience in funding the US subsidiaries of foreign companies selling into the US. If your US subsidiary is enjoying explosive growth and the cash flow needs as a result, we are excited to safely fuel your growth.