FACTORING IN FRANCE

- Divya Padmanabhan- 861

- B.B.A LL.B. (Hons.)

On a worldwide scale, almost a thousand companies currently offer factoring services, of which 435 are in Europe.The factors, namely the companies operating in this market, are usually subsidiaries of banking groups, financial institutions, insurance companies or manufacturing firms, and rarely independent companies.

France has the second largest factoring market in the world behind the UK. The five biggest Markets in 2010 were respectively UK & Ireland (17.0%), France (11.4%), Italy (10.7%), Germany (8.8%) and Japan (7.3%). It represents 15 percent of the total market in Europe, and 10 percent globally.

France 7.6% ; increase in demand in 2013 Volume of cross-border business grew in 2012:

France, was second with a 33% growth to EUR 2.7 billion

France’s total volume is higher than for the Americas

The Factoring Market is relatively concentrated with the five biggest Factoring Companies in France totaling on 87% of the National Market. With 38% of top 5 companies being Bank subsidiaries and 35% being Bank Divisions, it is clear that Factoring has become highly dominated by Banks.

The leading factor in France has à 20% market share

Factoring is a solution for managing companies’ trade receivables.

It provides them with financing which can complement or take the place of conventional bank facilities.

Factoring is aimed at all companies trading with other companies or public-sector bodies, whatever their size and sector of activity, whether or not they are engaged in exports.

The growing need for competitiveness increasingly emphasizes the advantages of outsourcing the management of trade receivables, allowing better concentration on core business, raising the quality of services offered to customers and fulfilling commercial objectives more effectively.

At the same time, the company’s efficiency increases and management and production costs are reduced or stabilized.

The factor enables receivables to be turned into cash as they fall due and costs to be kept under control.

WHY CHOOSE FACTORING Factoring is a durable solution for the

provision of short term finance, incorporating risk prevention, rapid financing of receivables, monitoring, follow-up and account management. By outsourcing the management of trade receivables, the company gains three key strengths:

conversion of fixed costs into variable costs; optimised administration; secure financial management. Trade receivables represent on average 40%

of a company’s assets.

A company can benefit from the use of factoring at each stage in its development.

In the start-up phase, financing receivables through a factor may overcome a shortfall of cash flow or bank facilities.

In the maturity and revenue-growth phase, there are various reasons for using the services of a factor: protection against customer failures, relief from administrative tasks or financing of growth.

TYPES OF FACTORING

Non-disclosed factoring with delegated management, known as “Confidential factoring". The company retains full control of the management of its receivables, and the existence of the factoring contract is not disclosed to customers.

Reverse factoring The company (the principal) gives

advance instructions to the factor to pay its suppliers when their invoices have been passed for payment.

It reimburses the factor on the normal due dates of the invoices.

Export factoring enables the company to delegate the management of export receivables.

The factor either has local companies or correspondents, or multilingual personnel, who are fully conversant with the specific characteristics of international trade.

The company’s export receivables are guaranteed against the risk of bad debts on the part of a customer.

REMUNERATION The factor’s services are remunerated through

two main components, which are defined in the contract with the company:

The factoring (or service) commission provides remuneration for the management operations

The financing commission, based on a bank reference rate, is calculated in accordance with the amount and period of financing requested.

Factoring essentially includes the service commission, which pays for the management operations, and the financing commission, which pays for the cash advance.

HOW IS FACTORING SET UP? After the contract has been signed, the company forwards

duplicates of its invoices to the factor on a regular basis, for example every week. This can be carried out electronically or by post.

Except in the case of “confidential” factoring, a subrogation notice supplied by the factor must appear on the company’s invoices, and its customers are informed that they must send their payment to the factor.

For each new customer, the company opens a purchaser account with the factor and requests a limit up to which the commercial transactions in respect of that customer will be guaranteed.

Most factors offer online services enabling the company to monitor all its operations: guarantees provided, payments received or disputes detected by the factor, financeable amount provided etc.

Finally, the company has a dedicated contact for all its factoring operations.

To take advantage of factoring, the company includes a subrogation notice on its invoices and forwards copies of invoices to the factor. By means of online services it can then request financing and monitor its customers’ payment status.

The latest strategy is focused on the SME sector, Nevertheless, they still compete for large corporate deals, with international tailor-made solutions.

The main change in product mix is concerned with an increase in full factoring contracts signed with SMEs. Larger companies seem to have significantly reduced their inventories in 2009 and will not need extra funding before their activities rise again.

Regarding the portfolio, invoice discounting represents more than 50% of the turnover and this percentage will grow further in response to demand.

Banks have introduced reverse factoring in the French product mix. This facility is still quite new in the French market and the main competitors only have a few clients using this product. In 2011, it represented 1% of the market turnover.

It is expected to grow within the next five years to reach an average of 5% of the volume.

CGA and Air France signed a factoring deal on the 12th of December, 2012.

CGA, Societe Generale’s French factoring subsidiary, has finalised in December a deal to provide factoring services to Air France.

Through close dialogue and cooperation, CGA was able to tailor their services to suit Air France’s needs, offering non-recourse factoring up to an agreed amount of EUR 250m.

2007 2008 2009 2010 2011 2012 GDP Penetration 2012

Market Share 2012

FRANCE

121600

135000

128182

153252

174580

186494

9.19% 15.45%

24.00%

15.50%

15.10%13.00

%

10.30%

22.10%

Total factoring volume in EU in 2012(in millions of EUR)

United KingdomFranceItalyGermanySpainOther EU coun-tries

Despite the generally low levels of economic growth currently evident across the EU, the Industry continued its strong growth pattern in 2012 to a record €1.2 Trillion. This growth reinforces the importance of the funding solutions for the support of SMEs, economic activity, wider growth and wealth creation.