What is Cross-Border Finance?

The rise in overseas trade has led to an increase in demand for cross-border finance. International trade brings considerable benefits to businesses as well as the wider economy. That said, it can also put businesses under immense pressure as they try to plug the cash flow gaps between placing and paying for orders with suppliers and invoices being settled by end-customers.In addition, access to finance can be limited for businesses that trade internationally as many of the big banks will only lend to UK businesses that trade in the home market. Whether SMEs are importing or exporting goods, this is where cross-border finance can help to expand their reach.

In addition, access to finance can be limited for businesses that trade internationally as many of the big banks will only lend to UK businesses that trade in the home market. Whether SMEs are importing or exporting goods, this is where cross-border finance can help to expand their reach.

What is Cross-Border Funding?

This type of finance refers to any source of funding that enables a business to trade internationally. Cross-border finance also known as import finance or export finance requires the financial provider to act as an intermediary between the business, the supplier and the end-customer, supporting the transaction throughout the process to enable the business to do cross-border business without the requirement for a large reserve of working capital.

The Facts

Cross-border factoring is a type of cross-border finance that is from the same family as invoice finance (factoring and invoice discounting). It enables businesses to sell their receivables (invoices, purchase orders) to a factor or factoring company that collects payment from customers on behalf of the business. The factor provides an advance on the value of the invoice and once the customer settles the invoice, the business receives the balance, minus fees.

Factoring is a quick cash flow fix, providing the business with immediate funds that can be used to cover operating expenses and make investments in future growth, rather than waiting up to 120 days for the end-customer to pay. By transferring the delay on to the provider, factoring boosts the pool of working capital available to the business.What kind of businesses does it help?

What kind of Businesses Does it help?

This type of finance is typically suited to businesses that have strong supply chains and creditworthy end-customers but don’t have the working capital to seize the opportunity alone. Businesses looking to import or export products for resale can raise cross-border finance with a confirmed purchase order to use as security. Whilst traditional lenders are focused on the creditworthiness of the business and its balance sheet, with cross-border finance, providers are chiefly concerned about what the transaction is, how much it will grow the business and who is involved in the supply chain.

The Five-Step Process

1. The business places an order with the supplier
2. The provider pays the supplier up to 100% of the purchase price of the goods or raw materials
3. The goods are shipped and delivered
4. The business repays the provider through an invoice finance facility based on the value of customer receivables raised for the goods
5. The funds available are recalculated after every transaction so the business is informed every step of the way.

The Benefits of Cross-Border Factoring

One of the benefits of cross-border factoring is that it can provide peace of mind to importers and exporters as the provider manages supplier payments for the goods so that the business can meet its customer deadlines and focus on positioning the business for growth. Additionally, the provider can help meet the business’ purchasing needs as well as deal with all the documentation as part of the agreement, which makes the process more efficient and avoids any unnecessary delays.

If you would like to know more about cross-border factoring and how it can help ambitious businesses to expand their reach overseas, please call 08000 24 24 51 or email info@businessexpert.co.uk for free and confidential advice from one of our professional advisers