What is Factoring and SWIFT Payment?
Exporting and Importing can often be an extremely complicated and mundane process as there are so many rules, regulations as well as countless number of procedures to adhere to. This, many a times, may require to prepare and submit documents for import and export. Usually, freight forwarders would prepare it for us, but it is also good to know for ourselves as to how to complete the relevant documents by understanding what the terms mean. As such, in our new article series titled “Export Terms”, we would introduce you to all the various terms used in the international trade, be it through air, land or sea freight. We would roll out one related article on a regular basis, which would help you to get a comprehensive understanding as to the document preparation for the purpose of doing trade internationally. In this article, we would be covering the meaning behind Factoring as well as SWIFT payment.
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What Is The Meaning of Factoring Payment?
Although there are several types of factoring payment, we would be focusing on the financial factoring aspect, which is most commonly used when there are import and export shipments between a buyer and a seller. Financial Factoring in essence, involves a buyer, seller as well as a third party known as the factor.
The buyer is the one that buys the goods but in many cases but in many cases, the buyer does not pay up immediately due to payment terms such as buying on consignment or other reasons. The seller on the other hand, sends the goods to the buyer but has to wait for a long period of time before he could receive the cash. As such, by using factoring, the seller can get about 80 percent of the payment first from the factor immediately. The factor then bares the responsibility and risk of collecting the full amount from the buyer.
How About The Meaning of SWIFT?
SWIFT is the short form for Society For Worldwide Interbank Financial Telecommunications. Essentially, the SWIFT operates as a global communication network that facilitates payment instructions between banks, companies and several other forms of entities all across the world. Formed in the late 1970s, the SWIFT network consists of more than 7000 member entities across 180 countries.
The SWIFT network operates for 24 hours each day and handles a few hundred million messages related to payment instructions each day. Using SWIFT has become a popular mode of payment for importers, exporters, banks, multinational companies, government corporations and many more. It is important to take note that SWIFT does not handle payment, but only the instructions which are related to payment. Today, SWIFT is based in Belgium.
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