The Solution: Factoring
Here’s How It Works
They turn to a factoring company, and after the factor reviews their invoices, they agree to fund the deal. Now ABC can go to their bank and ask their banker to open a letter of credit in the amount of $300,000 to buy the widgets from OVERC Supplier in Hong Kong. The bank opens the letter of credit on behalf of ABC for OVERC, and OVERC ships the product from Hong Kong to ABC Importers.
First Bank gets the documents from OVERC and negotiates the Letter of Credit, paying off the supplier. The cargo ship with the goods arrives at a U.S. terminal. The import factor advances the funds to ABC to pay the freight bills and import duties. The goods are then delivered to ABC’s warehouse and are kept there under the factoring company’s control. ABC arranges for the delivery of the widgets to the buyer in the U.S.. Once the widgets get delivered to and accepted by the buyer, ABC issues an invoice to the buyer and forwards a copy to the factor. The factor immediately advances 80% of the funds to ABC and keeps 20% in reserves. During the window of time when the bills of lading were released to ABC and the goods were sold to the buyer, the factor held a general lien and trust receipts covering the purchased widgets.
The buyers make their payments directly to the factor. Once the invoice is paid, the factor pays ABC the difference between the amount collected and the amount already advanced, less the factor’s discount fee.
What Are the Benefits?
If you have any questions or want to discuss how Meritus can help solve your importing problems, contact us at 877-648-3709 or complete the contact form.