July/August 2014

Invoice Factoring — Facilitating International Trade

Not only are U.S. vendors and manufacturers seeking international invoice factoring solutions, but so are sellers around the globe. Henry Grace explains how the impact of the Great Recession caused U.S. Financial to shift its emphasis away from more traditional forms of financing to using invoice factoring as a way to facilitate international trade for its customers.

Henry Grace, Senior Financing Specialist, U.S. Financial Companies

Henry Grace, Senior Financing Specialist, U.S. Financial Companies

The decision to get into international invoice factoring didn’t happen overnight. In fact, it happened quite by accident. Since 1998, Columbus, OH-based U.S. Financial Companies has been a leader in financing all types of equipment being acquired by a broad spectrum of borrowers with varying credit profiles.

However, in 2008, at the onset of the Great Recession, the equipment finance industry changed rather drastically. With the economy stalled, companies began to experience the pain of harsher credit underwriting criteria that manifested itself in the form of larger down payments to reduce the risk associated with an equipment financing. As a result, these limitations caused financial pain for a customer that needed to acquire equipment because of the additional cash that was required to secure a loan or lease. It turned out to be an opportunity to create an alternative way to provide almost immediate access to cash — the solution for many turned out to be invoice factoring.

Once we explained the benefit of using invoice factoring as a way to offset the cash-flow impact of having to come up with higher down payments, our customers were able to access the 10% or 20% down payment they needed to execute on a new financing. Thus, we were able to help our customers generate instant cash by using of their most valuable assets, their receivables.

After a few short months it became apparent that our customers wanted to continue to factor with us even after an equipment financing transaction had been paid off. Once we realized there was a real need for those same customers who came to us for their equipment financing to have access to working capital, we quickly figured out that invoice factoring would work well to fill this need.

We decided to try marketing invoice factoring to all of our previous customers that we had helped over the last 10 years. The response was immediate and overwhelming. It turned out that many of our customers did not have a bank line or, even if they did, it was not of a size that was in keeping with their needs. It was clear to us that we needed to add invoice factoring as one of our featured services.

And it didn’t stop there, as we began to get inquiries from our customers asking if we could offer factoring serviced to support sales outside the U.S., especially in Europe. At the time, we didn’t possess the resources to accommodate these requests. But the calls kept coming, which motivated us to investigate further. What we found was shocking. It turned out that the need for international invoice factoring is huge.

Normally, the invoices are much larger and more consistent. Not only did that interest us, but we also found that the need for it is global. Not only were U.S.-based companies looking to use international invoice factoring, but so too were companies all around the globe.

International invoice factoring allows a vendor or manufacturer to send product on open terms to a customer anywhere in the world. This is important because in many cases, these vendors or manufacturers were requiring payment or a letter of credit before shipping or sending the goods.

This made it tougher to do business, as many buyers wanted the product in hand before remitting payment. International invoice factoring is a perfect way to offer open terms, which means higher sales because the seller can send its goods to a foreign customer, get paid immediately and, at the same time, mitigate its risk of non-payment due to client insolvency. This gives the foreign buyer the comfort of not having to issue a letter of credit or pay in advance for every order. And the seller is provided with the cash for the product now.

Another reason international invoice factoring has become a huge success is that many of the large retailers in the U.S. and Europe will not pay for goods before they ship. In fact, they will pay for goods between 90 and 120 days after the arrival of the goods in their warehouses. Many sellers do not have the ability to accept terms like this. However, by offering international invoice financing, we’ve been able to help many of our new customers get in the door of some of the largest retailers in the world, and that part of our business is growing every month.

Today, U.S. Financial Companies is offering international invoice factoring to all of Europe, Central and South America, Asia and the Middle East. It really is a global economy, and factoring has become a major facilitator of international trade. We’re glad to be a significant player in it.

Henry Grace is a senior financing specialist at U.S. Financial Companies.