What is Factoring?

Factoring is a short-term financing mechanism through which a commercial, industrial or service-related firm or individual engaged in business activities promotes its growth through the sale of its current accounts receivable to a Factoring firm. This is a solution for managing a firm’s commercial loans.

International Factoring occurs through a contract between the Factoring firm (Factor) and a supplier in which:

• The supplier transfers to the Factor the rights from its international purchase-sale contracts signed with its clients, with the exception of those referring to goods purchased primarily for personal, family or domestic use.
• The Factor must fulfill at least two of the following functions:

• Financing to supplier.
• Portfolio administration (control of accounts receivable).
• Accounts receivable collection.
• Hedging against risk of non-payment by buyer.

• In addition, the buyer (debtor) must be notified in writing of the assignment of accounts receivable.

Definition in accordance with the UNIDROIT (International Institute for the Unification of Private Law)

What is an open account?   

In this sales contract, the supplier allows its buyer a certain period of credit (usually between 30 and 90 days from the invoice date) and buyers agree to pay the supplier at the end of such period.

The supplier sends the goods and documents directly to the buyer, and may thus agree on the most convenient terms for sending and receiving the goods.

At the end of the credit period, buyers are responsible for payment. Payment may be effected through a check or wire transfer, or a banking payment obligation (usually when payment is in a foreign currency).

Who intervenes in International Factoring?  

• Export firm – Supplier of good or service.
• Import firm – Buyer of good or service.
• Export Factor – Provides at least two of the Factoring services to the Export Firm (financing, portfolio administration (control of accounts receivable), accounts receivable collection and/or hedging of risk of non-payment by buyer.
• Import Factor – Qualifies importer’s risk and manages accounts receivable collection.

Who is Factoring designed for? 

All Mexican export firms that have liquidity needs and are interested in financing alternatives, and/or firms demonstrating growth, with the aim of entering new markets.

When do you need Factoring?    

Firms may benefit from the use of Factoring at any stage of their development.

When firms are in growth and maturity stages, there are a number of reasons to use the services of a Factor, including for hedging the risk of client non-payment, and for reducing administrative tasks in order to focus efficiently on human resources and liquidity through accounts receivable financing.

What are International Factoring services?

Clients are eligible for one or more than one of the services offered in line with their needs.

• Management of accounts receivable.
• Management of accounts receivable collection.
• 100% hedging of buyer’s risk (with the exception of commercial disputes).
• Legal action, when necessary.
• Investigation of the solvency of foreign buyers.
• Financing of assigned accounts receivable.

What are the advantages of International Factoring?

Exporter (Supplier):

• Increased export sales, since competitive conditions can be offered to clients.
• 100% coverage of potential losses from foreign buyers’ failure to pay.
• Liquidity and certainty in your cash flow, through invoice factoring.  .
• Complete information on the status of accounts receivable.
• Competitive financial costs.
• Improved indicators in your financial statements, through non-recourse factoring.
• Information and monitoring of your clients’ risk levels.

Importer (Buyer):

• May purchase under convenient conditions in an “open account.”
• May increase purchases at improved terms.
• Purchasing orders may be placed easily without delays and without the costs and commissions involved in letters of credit, etc.
• May communicate with Import Factor in own language.

Import Factor:

• May generate new business by entering into contact with Importer.

Export Factor:

• May offer its Factoring services to Exporters with Buyers in many countries around the world.
• May acquire hedging of buyers’ credit risks through the Import Factor.

What is the FCI?    

• Factors Chain International (FCI) is recognized as the most important factoring network in the world, composed of leading factoring companies in different continents, and founded in 1968 in Amsterdam, Holland.
• It currently brings together over 270 members from 63 countries.
• It was created for the purpose of developing a framework for International Factoring that allows Factoring firms in import and export countries to work together and to globally promote the use of Factoring as the best mechanism for financing foreign trade.
• Bancomext became a member of FCI in 2010 to acquire the benefits of belonging to this association and provide this service to Mexican export and import firms.

What is International Export Factoring?   

It consists of a Revolving Line that operates electronically from your office, providing the following benefits:

• Hedging of 100% of the risk of non-payment by a foreign buyer.
• Financing of up to 90% of the value of the assigned accounts receivable.
• Management of accounts receivable.
• Management of collection abroad through financial institutions located in the buyers’ countries.

Basic requirements:

• Direct exporter, legally incorporated in Mexico.
• A minimum of three direct exportations during the last year, and one per year during the last three years.
• Favorable credit history.
• Not in state of technical dissolution.
• Assignment of the receivables portfolio of sellers incorporated into program.
• Not using Factoring for sales among subsidiaries or associated firms, or for consignment sales.

How does International Export Factoring work?

Accounts Receivable Financing is granted, through foreign buyers, by hedging provided by an FCI correspondent:

• The Seller (exporter) delivers goods or provides services to a foreign Buyer (importer), and sends an invoice (Accounts Receivable), which constitutes an obligation for payment to the Seller.
• The Seller requests that Bancomext (Export Factor) applies risk hedging to its foreign buyer.
• Bancomext requests a classification of this foreign Buyer from its International Financial Counterpart (Import Factor).
• The Import Factor classifies the Buyer and provides risk hedging to Bancomext.   .
• The Exporter signs a Factoring contract, transfers collection rights to Bancomext and notifies its foreign Buyer of this transaction.
• Bancomext provides hedging for the Mexican firm’s Accounts Receivable.
• The exporter applies to Bancomext for Accounts Receivable Financing.
• Bancomext deposits resources into the exporter’s account.
• When payment is due on accounts receivable, the Import Factor attempts to collect from the buyer and the buyer pays the accounts receivable.
• The Import Factor transfers the resources paid to Bancomext.
• Bancomext makes the remaining amount of the accounts receivable available to the exporter.

What is the cost?  

• Interest rate: Libor + 3.5% (less than 4% annually).
• Factoring Commission: Between 0.55% and 0.80% per invoice, depending on results from the buyer’s assessment.
• Commission for transfer of resources collected: US 35 + IVA.  A

What is International Import Factoring?  

Risk hedging is granted to an International Financial Counterpart (Export Factor), for the benefit of a Mexican import firm (Buyer), with the aim that the Export Factor grants financing to the export firms in its country through invoice factoring for export sales. Also, services are offered to administer the Mexican importer’s portfolio of purchases from foreign suppliers, previously assigned with collection by Bancomext.

Advantages

Importer (Mexican Buyer):

• Importing of foreign goods and/or services is facilitated, strengthening productive capacity and maximizing participation in foreign trade.   .
• May purchase with convenient conditions in an “open account.”
• No blocking of current lines of credit.
• Purchasing orders may be placed easily without delays and without the costs and commissions involved in letters of credit, etc.
• Without need for guarantees.
• Without financial costs or commissions.

Exporter (Foreign Supplier):

• The advantages corresponding to the International Factoring program, specifically: financing, risk hedging, management of accounts receivable, and collection.

How do I apply for factoring?  

Step 1
Request 2 simple forms:

• Letter stating compliance with eligibility criteria.
• Identification document with data on foreign buyers.

Bancomext will request buyer’s risk hedging from its international financial counterparts and will notify you of the results.

Step 2
After your Bancomext account executive notifies you that the international financial counterpart has approved a line of credit for your buyer, we will request that you:

• Prepare a file with the required documents for entering the program.
• Fill out the forms annexed.

Your account executive will validate the documents presented and will notify you of the authorization of your line of credit, if applicable.

Step 3
Bancomext will send you a packet of information on how to proceed with obtaining the line of credit and registering for electronic banking services.