Invoice Factoring: FAQ

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With more and more Indian exporters using Trade Finance services such as Factoring/Bill Discounting from Seawise Capital. We go over some of the frequently asked questions below. 

Shift Your Cash Flows into High Gear with Invoice Factoring

 Invoice factoring or Bill Discounting in its simplest form is the selling of an invoice to a Factor such as Seawise Capital, and releasing cash for the Exporter which would otherwise be tied up in the payment cycle. This is a useful financial tool for Exporters who are looking to grow trade volumes, while reducing risk from their receivables. Given the recent situation with lockdowns due to Covid an increasing amount of buyers are asking for extended payment terms, and we allow our exporter customers to offer these terms to their customers. Through this feature, we have attempted to address some of the frequently asked questions below:
I already have bank limits; can I still use factoring?
Yes! Seawise Capital’s facilities do not require any collateral, so you can continue using your existing limits with the bank and use our factoring facilities in addition. This means there is no extra liability on your balance sheet, which is great for the financial health of a company.
How is this different from the facilities offered by banks?
Banks offer Bill Discounting limits that are on full recourse to the clients. These are usually secured against the company’s assets. The exporter is liable to pay if the buyer becomes insolvent, as there is no credit protection involved. As these are secured against the Exporter’s assets, that means exporters find it hard to avail additional limits if their business grows.
Our Factoring products on the other hand does not require any collateral from the exporter, and includes credit protection. Seawise Capital finances exporters based on the strength of their international buyers allowing our customers to grow. Furthermore our facilities typically include credit insurance, so the exporters are secured even if the buyer becomes insolvent.
How does Factoring compare with Letters of Credit?
Letters of Credit have been very popular historically, however they are becoming less popular as compared with other products such as factoring.
One of the biggest advantages of factoring over LCs is that factoring provides exporters with cash up front in addition to credit protection. With LCs Exports have to then further get the LC discounted from a third party bank thus adding to the cost.
Another advantage of factoring is that a factor can avail it directly without placing much burden on the buyer. Letters of Credit typically require a lot of involvement from the Buyers to get them issued, and can take a lot of time to set up.
Is this compliant with RBI rules?
Yes, RBI allows exporters to use overseas factoring companies to factor/discount their trade invoices. This is outlined in clause 6.1.2 of their Master Circular – Rupee/Foreign Currency Export Credit and Customer Service to Exporters released on 1st July, 2015.
How come I have not heard about this product before?
Traditional banks in India typically do not offer unsecured factoring facilities. Seawise Capital is amongst a handful of finance companies offering this product.
How does a transaction work?
In a typical factoring transaction, the exporter applies for funding once the goods are shipped to the buyer. The Factor would purchase the invoice from the Exporter and advancing them a percentage of the invoice value. The buyer receives the goods and pays the Factor once the invoice credit period is over. The Factor then deducts its charges and remits the balance to the exporter.
Who is Seawise Capital?
Seawise Capital is a UK based trade finance company, offering factoring facilities to Indian Exporters. We have been operating in India since 2018, and are backed by large institutional US and UK based investors. With our own balance sheet capital, we fund the customers ourselves and have a quick funding process. We have customers all over India, ranging from small to large scale exporters and we can tailor our solutions based on your requirements. With our fast and 100% online process, you can get set up with a facility in less than a week.

One of the benefits of working with Seawise Capital over other providers is our flexibility. We understand the delicacy of the supplier/buyer relationship, and structure bespoke and cost effective solutions that work for all the parties involved. We can cover buyers in over 150 different countries, and work with leading credit insurance providers and banking partners to make sure our clients get the best service. 

Get in touch with us, to see how Seawise Capital could help you grow your exports.  

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