As a Dutch company, you can generate turnover worldwide. But can you also finance your receivables globally? As your business grows internationally, the need for working capital often grows too. This is particularly true when foreign customers only pay after sixty, ninety or one hundred and twenty days. Of course, your suppliers, staff and tax bills still need to be paid. So your financing needs grow in line with your turnover.
A Dutch bank initially provides financing based on the Dutch company and its Dutch collateral. If part of the turnover comes from foreign debtors, certain factors become more relevant. These include the country in which the debtor is based, whether the receivable is insured, and the currency in which invoices are issued. A foreign debtor may be commercially attractive, but from a financing perspective, the situation is also more complex.
An internationally appealing combination
A financier looks not only at the size of your accounts receivable portfolio, but also at its quality. A well-managed, insured portfolio provides greater insight into the risk associated with the underlying receivables. And it helps to structure the financing more effectively. Credit insurance protects against risk, whilst factoring provides liquidity for the receivables. This can be an attractive combination internationally. Bear in mind, however, that not every foreign invoice is eligible for financing. Countries with heightened political or legal risk are scrutinised more closely, as are sanctions, capital controls, currency trends and local legislation. In addition, the quality of the debtor is assessed, as are the payment terms and the manner in which the invoice can be legally transferred. An invoice is therefore not automatically eligible for financing simply because it appears on the balance sheet as a receivable. The ECB notes that banks are also becoming more cautious; they have tightened their lending criteria. Particular attention is being paid to companies with significant exposure to international trade. This makes alternative forms of working capital financing all the more relevant. Factoring, for example, can be linked to specific debtor portfolios or export flows. In this way, the financing grows in line with turnover.
Cross-border factoring
If you not only export but also operate locally in several countries, a single Dutch factoring facility is often insufficient. Cross-border factoring is an attractive option if you have your own branches across borders with local customers who pay in the local currency. In such cases, it offers an alternative: a single international framework implemented locally in each country, aligned with local legislation, currency and debt collection practices. The two-factor model is a well-known form, coordinated via networks such as Factors Chain International (FCI). An export factor in the supplier’s country works in partnership with an import factor in the debtor’s country. The import factor knows the local market, assesses the credit risk on the ground and handles the debt collection. This offers advantages for companies with multiple local entities. The risk assessment is carried out locally, debt collection is local, and there is less currency risk, as invoicing and collection take place locally in the local currency. All this is supported by an overarching facility and reporting system. Here too, we must point out that not every country or debtor is automatically suitable. Coverage and terms depend on local enforceability and the quality of the available information.