Guest Post: Financing Exports with a Factoring Arrangement

Editor’s Note: This guest post for Trade Tips Blog was written by Tom Klausen. 
By: Tom Klausen
The United States presents a tremendous market opportunity for Canadian entrepreneurs, but selling across the border has to be done carefully.  A critical ingredient to exporting success is financing. You must ensure that you have adequate working capital in place-or if not, that you have adequate access to outside financing, such as a factoring arrangement-before you consider exporting to the U.S.
Financing Exports with a Factoring ArrangementThere are three main ways in which having a factoring arrangement in place is important to your long-term success in the United States:
1. It allows you to fulfill large orders. As an exporter, you should be prepared to fulfill large (and often unexpected) orders at any time. You might need to add a zero to your line of credit limit-bumping it from $50,000 to $500,000, for example.
Banks generally don’t consider U.S. receivables in their margin formulas, and they take a long time to determine increases in lines of credit. But factoring lines are dependant on the creditworthiness of your customers, not the amount of your receivables, so the availability of working capital can be increased as fast as new sales are generated.
With factoring, your business will receive 80 percent to 90 percent of factored receivables in the form of an advance when the receivable is presented to the factor. Compare this to waiting from 30 to 90 days or longer to receive payment and you can see the tremendous cash flow benefits to exporters.
2. It provides payment security. When exporting to the U.S., you’ll start doing business with companies you don’t know, which can be dangerous. A factor will perform extensive credit checks on U.S. customers before you ship your products or perform your service. This will significantly reduce your risk of selling to slow-paying and non-paying customers.
3. It accelerates customer payments. Often, U.S. businesses pay invoices presented by factors faster than other invoices because they know the invoice will be accurate and the paperwork will be in order-and that they will be getting a call if it is past due. Also, U.S. businesses know that factors report directly to all the major credit bureaus. Simply put, a factored invoice typically gets more respect than one from a small Canadian supplier.
Unless you have significant working capital resources at your disposal-or you’re confident that your bank will increase your line of credit if needed (perhaps substantially)-you should consider speaking with a factor before starting to export into the United States. If you line up your financing ahead of time and take the steps discussed in this article, you’ll greatly increase your chances of U.S. exporting success.
Tom Klausen is the senior vice president of First Vancouver Finance in Vancouver, BC. Tom has extensive experience in providing alternative financing solutions to small business owners. He also provides business management consulting services to both traditional and non-traditional lenders throughout North America. You can reach Tom at (604) 988-1490 or via email or visit
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