We Love Funding International Debtors. Why?
Why do we offer an international service?
What are the challenges with this type of transaction?
Is this classified as Debtor Finance or Trade Finance?
To find out, watch the video and/or read the transcript below
For an appointment with a Product Specialist call the office on 1300 652 158
Julia: Hi guys. I’m Julia. This is Daniel, and welcome back to
Julia: I have a question for you Daniel.
Julia: So I know that we deal with international debtors.
Julia: Is that classified as trade finance or debtor finance?
Daniel: That is a very good question. But let me start from way back.
Why do we do this? The main reason why we offer an international
service is to really set us apart from other providers in
Australia. There are not many debtor financiers who offer this
service, and there are a number of reasons why.
Julia: Do you want to tell us some of these reasons?
Daniel: Yes. If you don’t mind, I might go through them.
Daniel: The first one is usually you’re advancing to your client
Australian dollars, which is what we do. But you’re usually
receiving in a foreign currency. So it might be US dollars or
Canadian or New Zealand or pound sterling. So you’ve got to
receive those monies in your international accounts, convert it
back. It’s an extra layer of administration for the funder, from
our point of view. Also it’s an extra layer of risk that the
financier has to deal with because we’re advancing Australian
dollars, but we’re carrying a foreign currency exposure.
Daniel: Unless it’s hedged out. But if it’s hedged out and then the
debtor doesn’t pay, then you’ve got a hedge out there as well,
which poses other types of risk. So that’s the first problem or
challenge that you’ve got to get around. You can’t really get
around it. You’ve just got to wear that risk.
Daniel: The second challenge you’ve got with foreign debtors is
enforcement of the debt should you need to. If you trade with a
client, a customer that’s in America, for example, in one of
their states, you go over there, you deliver your products, you
raise an invoice from Australia to them, and then they don’t
pay. What do you do? If you’re an Australian company, it’s very,
very difficult to enforce that debt. Not only difficult, but
it’s very expensive to enforce that debt on US soil. So that’s
why the debtor financiers may have other problems with it.
We use an insurance contract to cover ourselves and our client on the
international side. So it’s basically like a non-recourse
product. It covers 90%, and that’s underwritten by QBE. But
that’s another reason.
The other issue as well is that those debtors overseas, the financier
here may not have good information on them. So we rely on our
insurer to help us with assessing the credit of those debtors
overseas. But what you’re trying to do with your clients here,
when you’re financing international debtors, is you’re trying to
make sure that they’re dealing with brand names overseas, which
is kind of hard because I don’t know a lot of the big brand
names myself. I don’t know about you or everybody else. But I
find that a challenge.
Julie: Yeah, I know them all.
Daniel: That’s a long-winded start to the answer to your question.
Julia: That was. Did you answer my question?
Daniel: I haven’t answered it yet.
Daniel: So is it debtor finance or trade finance? Well, from my point
of view, I think it depends when you want to finance the
invoice. Most clients think that they’re going to put it on the
ship, on the boat here, and then they can raise the invoice and
then send it to us and then we’ll end them the money against it.
However, there’s a bit of a problem. Unless the customer
overseas is accepting the goods here in Australia or taking
delivery of them here, then it’s not strictly speaking
financeable because it’s not due and payable until they have
received the goods. So that’s the question.
When you’ve got a client and their debtors are concentrated, so they
don’t have a lot of customers overseas or locally for that
matter, as a financier, we want to make sure that that invoice
or those goods are being accepted and the invoice is due and
payable before we finance it. If not, then it’s not debtor
finance. It’s actually trade finance, which is a pre-lend on the
Daniel: So yeah, the reality is it depends when you want to finance it.
Daniel: Slight difference or nuance, but there it is anyway.
Julia: Okay. All right. If you’d like an appointment with Daniel, call
the office on the 1300 number. As always, thanks for watching.
Daniel: Thank you.