“”Unlocking Global Growth: The Power Of Export Invoice Factoring””

by ibrlive | Oct 9, 2023 | Blog

The global market is continuously expanding, and businesses are finding new opportunities to trade beyond their national borders. Exporting is an essential aspect of business growth, and maintaining a healthy cash flow is vital for businesses to succeed in this domain. In the world of international trade, export invoice factoring is a financial solution that can help exporters overcome cash flow challenges. In this blog, we will discuss the concept of export invoice factoring, its process, and the benefits it offers to exporters.

What is Export Invoice Factoring?

Export invoice factoring is a financial solution that allows exporters to sell their outstanding invoices or accounts receivable to a factoring company, also known as a factor. The factor, in turn, advances a percentage of the invoice amount to the exporter, typically around 80-90%, within a short time frame. Once the customer pays the invoice, the factoring company settles the remaining balance with the exporter, minus their fees.

The Process of Export Invoice Factoring

Export and invoicing: The exporter ships the goods to the overseas buyer and issues an invoice with a due date for payment.
Assigning the invoice: The exporter assigns the invoice to the factoring company and provides them with the necessary documentation, such as the invoice, shipping documents, and proof of delivery.
Advance payment: The factoring company verifies the submitted documents and, once approved, advances a percentage of the invoice value to the exporter.
Collection: The factoring company takes on the responsibility of collecting the payment from the overseas buyer on the due date.
Settlement: Once the buyer pays the invoice, the factoring company settles the remaining balance with the exporter, minus their fees.
Benefits of Export Invoice Factoring for Exporters

Improved cash flow: By receiving advance payments on their outstanding invoices, exporters can improve their cash flow and use the funds to fulfill new orders, pay suppliers, and cover operational expenses.
Credit risk management: Factoring companies often provide credit assessment and monitoring services, helping exporters minimize the risk of non-payment from their overseas buyers.
Access to working capital: Export invoice factoring allows exporters to access working capital without taking on additional debt, providing them with the flexibility to grow their business.
Faster payment: Since factoring companies advance payments, exporters can receive funds quickly, usually within a few days, as opposed to waiting for weeks or months for their customers to pay.
Professional collections: The factoring company handles the collections process, saving exporters time and effort in chasing overdue payments and navigating foreign legal systems.
Currency risk management: Factoring companies often provide currency risk management services, allowing exporters to lock in exchange rates and minimize the impact of currency fluctuations on their profits.
Name of a few companies involved in export invoice factoring:

State Bank of India (SBI) Global Factors Limited: A subsidiary of the State Bank of India, SBI Global Factors Limited provides a range of factoring services, including export invoice factoring, for small and medium-sized enterprises.
ECGC Limited (formerly Export Credit Guarantee Corporation of India Ltd.): ECGC Limited offers export factoring services, along with export credit insurance and guarantees, to support Indian exporters.
Drip Capital: It’s a fintech company providing trade finance solutions to small and medium-sized enterprises (SMEs) involved in cross-border trade. Founded in 2015, Drip Capital focuses primarily on exporters from emerging markets, including India. The company offers export invoice factoring services, enabling businesses to access working capital by selling their accounts receivable to Drip Capital.
IBRLIVE INDIA PVT LTD: IBRLive bridges the gap between exporters and reliable factoring companies, streamlining the factoring process to help businesses unlock their growth potential. Our expertise ensures seamless financing solutions, enabling exporters to focus on expanding their global footprint.

Conclusion

Export invoice factoring is a valuable financial tool that can help exporters overcome cash flow challenges and grow their business in the international market. By partnering with a reliable factoring company, exporters can unlock the potential of their export business and focus on expanding their global footprint.

The Implications of the Revised TCS Slab on Foreign Remittances: Challenges and Opportunities

by ibrlive | Oct 9, 2023 | Blog

The outward transfers were roughly $18760.69 million in FY21 and $19610.77 million in FY21–2022. However, these numbers will soon see a decline. The Finance Act 2023 changed the TCS rates for foreign remittances under the LRS. Previously, a 5% TCS was imposed on foreign remittances, but the new TCS slab raised the rate to 20%. The tax, initially applicable from July 1st, 2023, has now been extended till October 2023 to give more time for compliance. The goal of the proposed system is to make it easier to follow high-net-worth individuals who send significant amounts of money overseas and ensure they are responsible for any obligations they may have accrued. Additionally, it will strengthen foreign exchange reserves, combat money laundering and increase tax revenue in the long term for the government.

Applicable to international travel, overseas investments, foreign currency transfers, and other remittances—except those for health and education; the new tax rate will, however, significantly impact the money remittance industry as it must adapt its business models and operations to comply with the revised tax regulations. This may involve updating their systems to accurately calculate and collect the increased TCS amounts and educating their customers about the changes and potential implications. Additionally, companies may face challenges in managing customer expectations and addressing concerns related to higher tax rates.

For example, any investment in foreign stocks, mutual funds, cryptocurrency, or property will attract TCS at a flat rate of 20%. Even though institutions offering EFTs and mutual funds’ investments abroad don’t come under the purview of the law, international investments still become unviable, as commented by Zerodha’s Co-Founder, Nithin, “This will adversely affect all platforms offering international stocks and international crypto exchanges.”

Consequently, before travelling abroad, you must pay a high 20% Tax if you convert currency from a bank or an authorised dealer in the form of a travel card. The tax will also be charged if you reserve your international trip using a domestic online travel agency like MakeMyTrip, Yatra, or EaseMyTrip. Thus, the standalone cost of the tour package remains the same, but the overall cost for you will increase. However, if you are going for a business trip abroad where your employer bears all the expenses or you purchase the ticket independently, you don’t have to pay any TCS. The higher tax rate will discourage individuals from sending money abroad, potentially impacting sectors such as tourism and foreign investments.

Since the announcement was made, travel agencies’ biggest worry has been an increase in the cost of total packages since they earn 35% of their total income from profits from travel packages. Tourists will likely prefer domestic travel so travel agencies will take the hit for reduced international tourism.

Implementing the new TCS slab has raised several additional challenges and concerns. One primary concern is the need for more clarity and guidance on how the tax regulations will be enforced and monitored, especially regarding transactions made through credit cards. The absence of a robust mechanism to track spending across multiple cards has raised questions about the effectiveness of collecting the TCS accurately. This has led to calls for self-declaration and further scrutiny to ensure compliance. Ajay Rotti, the founder of Tax Compass, supported this claim by tweeting, “Dear @nsitharaman – TCS on international use of credit cards is not something you should go ahead with. It impacts many business travellers who spend on behalf of the company. It serves no purpose with TCS on the employee’s name and can’t be on the company name!” According to many experts, imposing 20% TCS is also aimed at increasing the central bank’s grip on foreign remittances, which sometimes becomes a wobbly street to walk on. Along with compliance, it may also increase TCS’s cash flow and the number of persons subject to this tax.

Contradictorily, the government aims to ensure transparency and accountability in foreign remittances by implementing the new TCS slab. By imposing a higher tax rate, the government intends to discourage excessive overseas spending and encourage individuals to invest and spend within the country. This move also aligns with the government’s broader efforts to boost the Indian economy and reduce the dependence on foreign transactions.

However, the government’s decision to exempt credit card spending from the LRS limit and TCS deduction has been met with some relief among taxpayers. However, it remains to be seen whether this exemption is permanent or a temporary relaxation. The government may revisit the regulations in the future, especially if credit card companies develop infrastructure to track overseas spending. Taxpayers and businesses must stay informed about potential revisions to the TCS slab and related policies.

The introduction of the new TCS slab for foreign remittances under the LRS reflects the government’s efforts to regulate and monitor international transactions. While the higher tax rate may impact individuals and companies involved in money remittance services, educational and medical expenses exemptions provide some relief. Customers, businesses, and the overall economy must adapt to the changes and understand the implications of the new TCS slab on their financial planning and operations.

The higher TCS slab for foreign remittances poses challenges for businesses involved in money remittance services and tour operators. However, with careful planning and strategic adaptations, they can also find opportunities within this changing landscape. Here are some ways they can overcome the challenges and leverage the situation:

Update systems and educate customers: Money remittance service providers need to update their systems to accurately calculate and collect the increased TCS amounts. They should also educate their customers about the changes and potential implications. Businesses can build trust and minimise concerns by proactively communicating with customers and providing them with transparent information.
Explore exemptions and alternatives: While the higher TCS rate applies to most foreign remittances, businesses need to explore exemptions and alternatives available. For example, transactions related to health and education are exempted from the increased TCS rate. By diversifying their offerings to focus on these exempted categories, businesses can attract customers who seek to send money abroad for specific purposes.
Enhance value-added services: Money remittance service providers can differentiate themselves by offering value-added services that go beyond simple remittance transactions. They can provide personalized financial planning advice, assistance with compliance and documentation, or even investment opportunities within the country. By positioning themselves as comprehensive financial service providers, businesses can attract customers who are looking for additional benefits and expertise.
Promote domestic tourism: Tour operators, facing reduced international tourism, can shift their focus to promote domestic travel. By showcasing the unique experiences and attractions within the country, tour operators can capture the attention of travellers who might have initially planned for international trips. Collaborating with local tourism boards and offering attractive domestic travel packages can help tour operators attract new customers and sustain their business.
Seek government support and advocacy: Businesses involved in money remittance services and tour operators can collectively advocate for their industry’s interests and seek government support. Engaging in constructive dialogues with relevant authorities can help share concerns and propose feasible solutions. They can highlight the potential impact on employment, economic growth, and foreign investments to emphasize the need for a balanced approach to tax regulations.
Innovate and explore new markets: In response to the challenges posed by the higher TCS slab, businesses can explore innovative solutions and tap into new markets. For example, they can leverage technology to develop efficient remittance platforms, target niche customer segments, or explore partnerships with fintech companies. Exploring emerging markets or offering specialized services for specific industries can open up new revenue streams and mitigate the impact of the higher TCS rate.
By proactively adapting to the changes, identifying opportunities, and seeking strategic partnerships, businesses involved in money remittance services and tour operators can overcome the challenges presented by the higher TCS slab. While the road ahead may require adjustments and creative thinking, embracing the situation as an opportunity for growth and innovation can lead to long-term success.