Joao Costa Pereira | Wednesday, 06 May 2009

The Determinants of Global Factoring

Factoring services can be traced historically to Roman times. Closer to our own era, factors arose in England as early as the thirteenth century, as commissioned merchants for manufacturers in distant, unfamiliar markets. The factors mitigated the risk of selling to unknown countries and buyers as well as the collection of monies due. These types of services still today contribute to the growth of the product, but examining factoring as a global product leads to the conclusion that an increasingly conducive and responsive legal environment has had a much greater impact on the phenomenal growth of the product in recent years - especially in the developing countries such as India, China, and Turkey.
Today, these developments and the improved IT environment enabling supply chain financing have made this product the fastest growing trade finance product in the twenty-first century.
FIMBank, like many other factoring companies offer their clients a complete financial package that includes: financing, administration (collection), risk bearing (credit protection) and cash management expertise. Demand of these services has substantially increased and the product indeed offers a unique opportunity for companies to access funding whilst mitigating risks, especially in these difficult times.
There are 1768 active Factoring companies worldwide dealing with an annual turnover of €1,300 billion. From 2002 to 2007, the world factoring volume grew by 79 per cent.
The most successful markets are still in Western Europe, particularly the UK where invoice financing in recent years reached volumes never imagined before: UK alone represents 22 per cent of the world market with 286 Billion Euros of factoring volume and factoring represented 11.5 per cent of UK’s GDP.
Countries like France, Spain and Italy follow the UK closely and the use of factoring in these Western European countries has become very common for small and larger companies selling on open account.
Why factoring?
Factoring allows a company to raise finance based on the value of its outstanding invoices. Growing businesses, in particular, often find that factoring is a more flexible source of working capital than overdrafts or loans;
Factoring gives companies the opportunity to outsource their sales ledger operations and to use more sophisticated credit rating systems;
Risk Mitigation through credit protection.
It is easy to appreciate that the factoring product is an excellent tool to be applied in good as well as in difficult times and of course especially in today’s liquidity crises and the increased problem of assessing risks for domestic as well as international businesses.

The Importance of Factoring to support exports
International factoring in 2007 represented only 11.2 per cent of the total market.
However, International/Export Factoring is expected to increase its presence as a booster for exports in many countries worldwide.
FIMBank’s offering of comprehensive factoring services supporting not only domestic but also export activities in Malta and globally, will add great value to all its customers.
Malta will need to increase its export volumes in order to create sustainable growth. It is therefore critical for Maltese companies to have access to a product such as factoring, enabling them to export to more European as well as to more exotic markets without increasing risks.
Imagine how much easier life would be if most of your business sales were in cash. FIMBank, through its Factoring Product can provide immediate access to cash tied up in the debtors’ ledger. In addition we can look after the day-to-day management of accounts receivables, so precious time is not wasted chasing customer payments, local or abroad.

Mr Costa Pereira is First Vice President and Head of Mediterranean Factors of FIMBank p.l.c.



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06 May 2009

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