Polish companies in foreign trade
If we decide to trace the Central Statistical Office ‘s data on foreign trade, we can easily see that Polish goods exports are growing year after year. According to preliminary data, in 2019 Polish exports achieved growth of 5.5%, which, with a lower rate of import growth, allowed the country to achieve a trade surplus. However, it is worth remembering that these are only preliminary estimates – the final import and export figures for last year will be known in late July and early August.
This information is cause for satisfaction, but we must realize that conducting foreign trade presents Polish entrepreneurs with not only an opportunity for faster development, but also a huge challenge.
Challenges Polish companies face in foreign markets
Polish companies trading with foreign counterparties often complain of limited opportunities to verify potential business partners. Commercial law in many countries is structured quite differently from ours, which poses a problem especially for smaller companies that do not employ their own legal department.
One of the most common problems faced by Polish entrepreneurs in foreign trade is the very long repayment terms of up to 120 days. If we add to this period the delays that can occur, we get a picture of companies that often wait more than six months to receive the funds due to them!
Types of international factoring
Export factoring
The solution to the uncomfortable situation described above for the company is export factoring. The process of using this service can be explained in five simple steps:
- First, the company sells the goods and invoices the contractor.
- The factor (the company using export factoring) then sends a copy of the document to the factoring company.
- The factor (the institution providing the factoring service) pays up to 90% of the value of the receivables within a few hours or days (depending on the arrangement) deducting the amount from its commission. From now on, the factor can dispose of the funds without hindrance.
- The factoring company monitors the debtor and makes efforts to ensure that the debtor returns the required amount.
- Once this is obtained, the export factor pays the remaining amount.
In what situations to opt for export factoring?
- When you want your company’s offer to compare attractively with the competition, not only in terms of cost, but also in terms of deferred payment terms, which a foreign contractor often demands;
- You are concerned that after issuing an invoice, your counterparty may not pay on time;
- By offering long payment terms to your counterparties, you are worried about lack of liquidity and lack of funds necessary, for example, to pay obligations to suppliers or employees.
Advantages of export factoring
Exporter factoring has one very big advantage worth mentioning – it reduces foreign exchange risk. Entrepreneurs choosing export factoring do not have to worry about exchange rate fluctuations, as they receive funds immediately after the sale of an invoice. It is also worth mentioning at this point that in full factoring, the risk of insolvency of your counterparties and contact with them is taken over by the factoring company. So you don’t have to worry about whether you will receive the funds for the goods delivered or the service performed on time.
Import factoring
This is a type of factoring similar in structure to reverse factoring (commitment factoring) – in this arrangement, a company importing goods from abroad establishes a relationship with a factor operating in the country from which it imports. This solution, although it involves additional costs for the importer, allows him to immediately pay off his obligations, and thus improve his credibility in the eyes of foreign counterparties.
5 steps of import factoring
- The company, which operates in the country, establishes cooperation with a foreign contractor. He signs a contract and commits to quickly repay the obligation.
- He then contacts a factoring company providing services in the country and uses its services.
- In the next step, the factor verifies the factor’s finances and pays off the factor’s obligation.
- The seller from abroad receives his due immediately – from his perspective, the transaction is over.
- The factor (a company importing goods to Poland) repays the liability to the factoring company on the agreed date.
When is it a good idea to use import factoring?
This type of factoring is a good solution for importers who are just making a name for themselves abroad, as well as for companies that want to postpone payment of their own obligations to foreign counterparties.
By choosing import factoring, your company stands to gain:
- Discounts from suppliers for early payment of invoices;
- The possibility of negotiating more favorable terms of cooperation;
- A better position vis-à-vis the foreign counterparty.
International factoring in support of Polish entrepreneurs
As we mentioned earlier, foreign factoring is a service that will primarily help you maintain liquidity.
Remember that the choice of financing source should be primarily dictated by the current needs of your company and the requirements placed on you by the industry in which you operate. If you don’t know whether export or import factoring will work for your company, you can take advice from specialists.
