How to Finance a US Subsidiary

For overseas entrepreneurs, it can be a great challenge yet great opportunity to open a foreign subsidiary of your company in the United States. However, you need to make a large investment to open a foreign subsidiary. You need funds to get the subsidiary started. You need to make ongoing cash contributions to manage operations, especially if the business is gaining traction.

Many companies get into problems at this point by miscalculating how much working capital they need to get a business established.

Getting Working Capital is a Challenge

Getting financing is a major obstacle for both the overseas parent company and for its US subsidiary. The parent company may not be able to get funding because local banks and finance companies do not feel comfortable financing foreign operations. Additionally, the home country may not have the right financing solution to help the company.

Getting direct financing for a subsidiary of a foreign company is a change as well. It is difficult to get working capital financing if your US subsidiary has no local personnel and is solely operated from overseas.

The Biggest Problem

Most commercial sales in the US are done on net 30 to net 60-day terms. Under these terms, your company has to deliver its products or services and then wait up to 60 days to collect payment. While your company waits for payment, you still have to pay for your own expenses. This practice is common in countries that have established credit services.

If your US subsidiary has cash flow problems because clients are paying in 30 to 60 days, you can use invoice factoring.

Factoring Improves Cash Flow

Factoring is a financing solution that we offer to the US subsidiaries of companies that are based in select countries. It helps companies with cash flow problems that stem from having to offer sales terms to their clients.

Factoring enables you to offer credit to your clients while closing the months-long gap between issuing an invoice and receiving a payment. Factoring improves your cash flow, enabling you to operate the business and meet your obligations. More importantly, it provides a solid platform to grow the company.

How Does Factoring Work?

Factoring transactions are simple. The factoring company buys your accounts receivable in two installments. Transactions proceed as follows:

• Your US subsidiary submits an invoice for financing
• Factoring company verifies the invoice
• First installment is wired to your bank account
• Your customer pays after 30 to 60 days
• Factoring company settles transaction
• Second installment is wired to your bank account

Benefits

Invoice factoring (also known as accounts receivable factoring) can offer your subsidiary a number of advantages, including:

• Improves your cash flow
• Enables you to offer credit
• Improves your collections
• Easy to obtain
• Can be deployed fast
• The line is flexible and grows with your sales
• Helps minimize bad debt

Companies That Qualify

Accounts receivable factoring can be used by companies that sell products or services to commercial clients (or the US Government) on credit terms. It is important that your client is commercially creditworthy. In fact, the whole transaction depends on it since invoices are the main collateral for the transaction.

Any work related to the invoice must be completed before it can be factored. Any products must be delivered and accepted. Factoring cannot be used in transitions where your customer can return an unsold product or made on consignment.