FCI, which was called "Factors Chain International" in the past, provides services for 383 member factors in 94 countries. FCI defines legal common rules which is called GRIF (General Rules for International Factoring), and provides an EDI system for credit applications/answers and for transfer/settlement of invoices.
Factoring isn't just a financial product but also a support tool for international trading business on another level.
When I join the international factoring department, I thought the most important thing was to know rules, so I first read the GRIF carefully, in comparison with our export factoring agreement with a client. I understood the GRIF is a well-designed common legal framework for international factoring which can be used in every country.
After studying the GRIF, I thought the next important thing was for me to know FCI correspondents personally. And so, in 2007, I participated my first FCI seminar. My first participation in one of the FCI annual meetings was in 2011 in San Francisco. There, I had as many business meetings as possible with delegates from many correspondent factors. Through this meeting I was able to establish personal face to face contact with business partners who we couldn't meet through daily email communication. After that, I participated in the annual meetings 7 times, almost every year. That made my presence known in the FCI community gradually.
Due to lock-down by Covid-19, many Italian buyers could not pay invoices on due date and sent requests for extension of due date via import factor or directly to the sellers. Many Japanese sellers were afraid of losing their business chance if they didn't accept the buyers’ demands.
But on the other hand, the exporters also had to consider about the default risks of the buyers. Accordingly they were inactive to respond to the buyers’ requests. We have explained the sellers that since the invoices are approved by the import factors, the exporters are free from default risks of the buyers as long as no dispute arises. Therefore, we recommend the sellers to accept the revised due dates if the import factors had accepted them. After that, all invoice payments had been collected on their respective revised due dates, which were mostly extended by 60 days, Accordingly, we did not execute any PUA (Payment Under Approval) at all. We think FCI’s two-factor system is a secure and solid scheme that is effective even in times of crisis.
During the annual meetings, there are also opportunities for us Japanese members to meet among ourselves. In 2016 in Cape Town, we discussed the current difficulty of sales promotion and agreed that cooperating with each other is currently the most important thing for the three Japanese Mega Banks.
I asked FCI’s Secretary General for cooperation towards holding an export factoring promotion conference in Tokyo, and he readily agreed. The three Japanese mega banks including us asked JETRO (Japan External Trade Organization) for assistance in attracting customers, and together, for the first time in 20 years, we held conferences organized by FCI in Japan. And not just in Tokyo, but in 2 other cities as well. We are sure that the conferences played an important role in increasing the publicity of export factoring.
Traditional international factoring starts when the exporter considers using export factoring. Acquiring new business is mainly the role of the export factor. It is necessary for the factor to undertake buyer's credit risk in order to realize the new business, but it is very difficult for the factor to take credit risk and collect payment when the buyer is located in a foreign country. Accordingly, it is necessary to find good import factors. Among FCI members, there are many factors in every region of the world who can undertake the import factor role, and export factors can request preliminary assessment to import factors easily by using FCI EDI system. In order to promote the success and development of international factoring, both intensive sales by export factors and active response by import factors are important.
A long time ago, our export client company who exported merchandise to an American agent received a letter from US court which requested them to file its accounts receivable against this buyer as soon as possible because the importer had filed for chapter 11. The exporter was surprised at this letter because it didn't expect at all that the buyer was in such a serious situation and its remaining debt was substantially high. The exporter was not familiar with the process of chapter 11. But it was using our export factoring service, and therefore the import factor did all the necessary US court procedures in its behalf. All the exporter had to do is to submit the purchase order, invoices and a copy of proof of delivery to us. Yes, that's all. In the end, it was able to recover the full amount of the invoices.
An exporter was using export factoring on a non-notification basis as a substitute for credit insurance because it was easy to introduce without notifying the buyer. However, one of the managers of the exporter was critical, saying that even though payment performance is excellent, the commission rate for export factoring is high compared to trade insurances. Under those circumstances, a payment delay of more than 60 days occurred, so the exporter switched to notification factoring and notified the buyer. Then the import factor dunned the buyer. The buyer responded and payment was made soon afterwards. After that the exporter is using factoring on a notification basis. Right now payment is prompt, even during Covid-19 period. We think the import factors’ role in collecting payments is very useful and important.
Recently, many exporters who are using Cash in Advance or LC are requested from buyers to switch to TT deferred payment when they plan to increase sales to the importers. If the exporters do not accept this change, it is possible that they will lose business. In such cases we recommend the sellers to introduce export factoring. If a credit line is approved by a factor, the exporters can change to TT deferred payment by using export factoring. Furthermore, if the exporters would like to receive fund immediately they can use invoice discounting services offered by banks or the export factors. This is the feature of export factoring that we recommend the most for SMEs around the world.
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