Startups face a variety of challenges every day, which is why entrepreneurs need to have the right kind of support when it comes to making decisions. Having solutions that are best suited your business needs, at all times, could be the answer. A good example of this is payments control and careful cash flow management. You will know that, as well as seeking a sustainable and profitable business model, it is crucial to have sufficient cash flow at all times to avoid preventable unwanted surprises.

To address this challenge, today we discuss reverse factoring and international trade solutions.

Reverse factoring

Reverse factoring is a service in which the Bank manages payments to suppliers on behalf of a customer, whilst offering the suppliers optional receivables financing. With this service, the Bank is responsible for making payments to the suppliers of your company (the payer) allowing you to defer payment to your suppliers.

In short, the Bank takes care of managing payments to suppliers and offers the payee advance payment of its receivables.

There are two types of reverse factoring that can be useful for your startup, making it possible to adapt to your company’s needs and its negotiating capacity with your suppliers:

• Standard reverse factoring, where the transaction is at no cost to the supplier provided the payment order is collected when it falls due. If the supplier wishes to receive advance payment, interest and a fee will be deducted from the nominal amount of the invoice.
• We understand that suppliers do not always accept deferred payment of their invoices and this is why there is also the option of Prompt payment reverse factoring. With this option, you can pay your suppliers the full invoice amount in cash and these payments will be settled in your current account at a future date, agreed in advance with the Bank, which is usually between 60 and 90 days. The corresponding financial cost (fees and interest) is charged upon transmission of the supplier payment orders.

International trade solutions

Sometimes, the commercial relationship with customers and suppliers can be more complex, for example, when international transactions are concerned. Fortunately, these days there are many different formulas to help startups with their internationalisation and many of them can be combined in foreign trade lines (known as “Comex” lines in Spain).

International trade can bring many opportunities for your startup, but can also present new challenges and concerns related to financial management. This is why having a financial partner able to support your startup on this journey can be crucial to your success. And it is also very important that you are aware of the financing options for your international operations and how to make payments to suppliers in other countries.

Financing your imports is not complicated to arrange. If you have a foreign trade financing line, when you issue an international payment via a transfer or cheque, even if you use the most sophisticated tools such as a documentary credit or documentary remittance, the Bank provides an option to finance this payment on a short-term basis, in euros or in other currencies, so that your cash flow does not take a hit. This reduces the impact of ordinary operations on cash flow, until sales are made and payment is received from your customers. This financing makes it possible to meet foreign payment obligations without sacrificing liquidity. It also means that better conditions can be obtained through bank financing than would be obtained if your supplier granted a deferral of payment.

If you decide to finance payments in a currency other than the euro, it is also important to know that exchange rate insurance reduces the uncertainty around the evolution of exchange rates while the financing is in place, as you can secure the currency exchange rate until the financing matures, thereby eliminating any potential negative impact due to higher than expected costs as a result of unfavourable exchange rate movements.

In any case, at Banco Sabadell BStartup you will find International Business specialists who can advise you about the banking services available for your startup’s international operations.

In our next edition, we will talk about how financial services can help your startup retain talent by offering attractive benefits to the people in your team, improving the way the company is perceived by your employees and creating a stronger bond and sense of belonging.