Invoice Verification as an enhanced service to the usual collection activities which Import Factors are offering upon request to Export Factors in the Two-Factor scheme. This is a service which makes the best practices of many existing IFs consistently and widely available.
Invoice Verification will serve Export Factors (EFs) with a higher level of comfort prior or after to their providing of finance to Exporters and reduce the risk of fraud and disputes resulting from the assigned receivables. For IFs, it is a tool to reduce buyer risks and generate additional service income through greater confidence in a two-factor system. Occasional verification is already a part of FCI services and can be provided within the normal service charge as long as it is mutually agreed by the IF and EF. Where verification is frequent or intensive, the IF shall be entitled to charge a special commission or a handling fee for this add-on service.
Even though the verification of the Import Factor is not legally binding (as it is the case with invoice confirmation in Reverse Factoring), the main benefit of this service for Export Factors is the early detection of client fraud and commercial disputes. The early contact to the buyers will also help the Import Factors to reduce their risks and long-term costs.
Seller: Peruvian SME
Buyer: Brazilian company
Nature of business product : Seafood for animal nutrition
An SME based in Perú specializing in sea protein products for industrial use is selling to a large corporate in Brazil, a producer of animal nutrition products.
The Peruvian SME approached Tradewind Finance, an FCI member, to finance their receivables with the Brazilian buyer on 60-day credit terms. As the buyer has a good risk profile, Banco Ourinvest, acting as import factor in Brazil, had no problem in approving the risk.
Nevertheless, the export factoring line approved for the Peruvian SME demanded risk mitigation by invoice verification before disbursement. Thanks to the services and resources furnished by FCI, the import factor has accepted and agreed to provide the service at the usual factoring commission fee.
So, for each transaction the export factor sends a msg 70 (invoice verification – request) to the import factor.
On reception of msg 70, import factor Banco Ourinvest contacts the buyer to confirm below and reply to export factor Tradewind Finance by msg74 (invoice verification – response):
- Their recognition of invoice and confirmation of their related purchase order.
- Their awareness and agreement with the notice of assignment written in the invoice.
- Their acceptance with the payment instructions to Banco Ourinvest as stipulated in the notice of assignment.
Despite some difficulties to obtain responses on first assignments, the procedure became faster — the import factor promptly replied allowing the export factor’s safe disbursements to the seller in one or two days.
Having a good risk buyer, with a credit limit approved, does not ensure that the buyer accepts and understands well the assignment and payment instructions, and recognizes the purchase order/ invoice value. In this case the invoice verification procedure was the key argument for the export factor to convince the credit risk management to approve the facility. For its part, the import factor is not only assured that the sales ledger is fully confirmed by the buyer, but it also increases revenue with new business.
For this service FCI has developed specific trainings, standard messaging in Edifactoring (MSG 70 and 74) and clear mutual responsibilities and a dedicated manual (in the private library under Manuals and Guides: “FCI invoice verification guide”). It also offers the possibility for the Import Factor to charge a supplementary commission for this extra service when verification is on a larger scale or frequent.