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TRANSCRIPT
Factoring as an Alternative Trade Finance Instrument in
a Competitive World 22 November2013
Peter Brinsley
Director, POINT FORWARD LTD
Peter Brinsley - credentials • 21 years in factoring • Now a freelance consultant with Point
Forward • Honours graduate of University College
London • Post-graduate studies in Accountancy • Certificate in Education • Chairman of the Education Committee of
International Factors Group (IFG)
Peter Brinsley - credentials • 10 years as International Manager, ABN AMRO • Compliance and Audit, Fortis Bank • Risk and Client Management, RBS • Training and workshops:
• IFG Academy, 2008-2013 • Cairo Factors, October 2013 • Afrexim Bank: Gabarone 2009; Cairo 2010; Accra 2011 • BCR Receivables Conference, Shanghai 2008 • Faktoring Pro, Moscow 2008 • China Receivables Workshop, Beijing 2007
Agenda • Session 1: What is factoring ?
• Session 2: Factoring legislation and regulation
• Session 3: Setting up a factoring operation
• Case study from Blend Financial Services
To begin at the beginning…
• Factoring is a purchase of receivables – Via a Pledge or Assignment or Subrogation – Transfers rights over the debt to the Factor
• Factoring is not a loan against receivables – Significant legal difference – The factor has rights over the debt. A lender does
not; he takes security against the debt
To begin at the beginning…
• The Factor makes money available against the receivable
• It’s not a loan • The Factor advances money to the client if the
client requests it • It’s not a loan
• QUESTION – how do you get your money back ?
Factoring v Bank product
• Bank products – Overdraft – Term loan – Loan against receivables
• Security for the facility: cash deposits, guarantees, fixed assets…
• Factoring can advance a higher percentage because of closer management of the facility
What factoring offers
1. Finance 2. Receivables administration 3. Collections 4. Protection against bad debts
The client has choices…
The Factoring Cycle
Factor
Supplier Debtor
1.Factor issues credit limit on debtor (non-recourse) 2.Supplier send goods to debtor 3. Supplier assigns invoice to factor 4. Factor advances 80% to supplier 5. Factor makes contact with debtor 6. Debtor pays to factor 7. Factor sends balance of money to Supplier
Types of Factoring • DISCLOSED
– Debtor knows of the factor’s involvement – Assignment notice on each invoice – Debtor clears debt by paying to the factor
• UNDISCLOSED or CONFIDENTIAL or SECRET – debtor does not know of factor’s involvement – No assignment notice on the invoice – Debtor pays to a bank account in the name of the
supplier but controlled by the factor some jurisdictions)
Factoring Products • RECOURSE FACTORING
– Supplier (client) bears the risk of the debtor not paying
– Debt is funded for a pre-determined period (typically 90 days from invoice date)
– If an invoice is not paid at 90 days, the client must repay to the factor the advance previously received
– in practice you restrict financing on next invoice(s)
Factoring Products • NON-RECOURSE FACTORING
– The Factor bears the risk of the debtor not paying (up to the amount of the credit limit)
– Each debtor is assessed by the factor and given a credit limit
– Client claims against the Factor if the debt has not been paid and there is no dispute
– The bad debt percentage (insured amount) is usually 100% of the value of the debt
– Many Factors re-insure the risk
Factoring Products • NON-RECOURSE FACTORING
QUESTIONS: (1) Are you able to assess debtors for credit in your country ?
(2) Can you re-insure the risk ?
* Factoring products MATURITY FACTORING
• Provides finance on the invoice due (= maturity) date
• Supplier gets traditional factoring services, and: • Can forecast his cash flow • Advances before maturity date also possible • Factor can offer payment extensions to debtors • No DSO (‘debt turn’) impact on the supplier
* Factoring products MATURITY FACTORING
• Agreements: (1) with Supplier (2) with Debtor – stating terms and conditions of payment extensions (length of extension; cost of delayed and [agreed] extended payments)
• Interest accrual on debtor’s account starts from maturity date
CONNECT. EDUCATE. INFLUENCE.
* MATURITY FACTORING
supplies invoices
SUPPLIER DEBTOR
FACTOR Payments Interest
Payment extension
Advance payments Maturity payment
Assignments Interest on advances
* Factoring products MATURITY FACTORING – the benefits
SUPPLIER * Forecast liquidity * Can plan ahead with known cashflows * 100% security against bad debts (with N/R MF) * Outsource receivables management * Able to offer debtors more attractive payment terms * Increase in debtor loyalty
DEBTOR * Extension of payment terms * Additional finance at competitive cost * Use supplier debts as additional source of funds * Increase in supplier’s loyalty
Factoring products • INTERNATIONAL FACTORING • 2-factor
system
Factor
Supplier Debtor
Factor
Factoring products • INTERNATIONAL FACTORING • 2-factor
system • Import factor
collects the debt and provides credit cover (n/r)
Export Factor
Supplier Debtor
Import Factor
International Factors Group • The global trade association that represents
and promotes the interests of the factoring, invoice financing and asset based lending industry
• “Connect. Educate. Influence” • 2-factor (export-import)
trading platform
IFG – benefits of membership • Trading partners: 160 members in 60
countries including Egypt, Mauritania, Mauritius, Morocco, Sierra Leone, Tunisia
• Education opportunities are cost beneficial for members
• Business solutions – Cross-border factoring – Collection services – Consultancy - IT systems - Legal advice
IFG – benefits of membership • Networking opportunities and connections
– Factoring; asset based finance; supply chain
• Operations guidance – General Rules of International Factoring
(GRIF) – Mentor support – Industry information, statistics,
archive presentations
Factoring products • SUPPLY CHAIN FINANCE: “reverse factoring”
Buyer Debtor
Supplier Supplier
Supplier
Large and well-rated buyer
Factor
Buyer Debtor
Supplier Supplier
Supplier
Large and well-rated buyer
Factor
Reverse Factoring
Reverse Factoring
Buyer
Supplier Supplier
Supplier
Large and well-rated buyer
Factor
1. Invoices from supplier to buyer
2. Approved payables file 3. Early payment to suppliers 4. Buyer pays factor at
maturity (or later) 5. Factor pays supplier at
maturity (if not previously financed)
1
2
3 4
5
ADVANTAGES TO THE CLIENT
Shorter time in
realization
Factoring facility reflects
turnover
Better liquidity
Can obtain discounts from own suppliers
Attract new business through
trade discounts
Growth without
additional borrowing
Protection against
bad debts
Save costs by
outsourcing collections
Benefits of factoring
Benefits of factoring
• To the DEBTOR – Trading on open account terms – Trade discounts may be offered – Trade helped by factor’s assessment for credit
• To the factor’s SHAREHOLDERS – Return on capital – Factoring more suitable for SME risk
(closer monitoring of receivable)
Factoring in figures: 2012
North America 6%
South America 9%
Europe 55%
Africa & Middle East 2%
Asia 25%
Australasia and NZ 3%
World totals: 2,700 significant scale factoring providers $2.792billion industry turnover = +8% on 2011 (2011 was +21% on 2010) $400 billion advanced to 0.5 million clients
Source: IFG GIAR 2012
South Africa
• Factoring established since 1970s • Main product is confidential invoice
discounting • Single invoice financing a growth product • Export factoring is facilitated against debt
insurance • No central register of assignments • Expansion into Africa likely by major banks
Africa Review
• ANGOLA - Financial Institutions Law covers factoring but no statistics to prove take-up
• BOTSWANA - government claims to support finance to SMEs. Invoice discounting offered in the market.
• GHANA & KENYA – receivables financing by Banks
• MAURITIUS – factoring and leasing closely aligned
Africa Review
• MOROCCO – reverse factoring • SENEGAL – French bank offers factoring • TANZANIA – Banks developing products for
the SME market • ZIMBABWE – factoring market 10 years old
but still emerging: no law on factoring; no association of factors
Any questions ?