How companies use factoring?

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1 How companies use factoring? Case studies C a s e s t u d i e s t a k e n f r o m F a c t o r s C h a i n I n t e r n a t i o n a l, w w w. f c i. n l

2 Turkish Rugs Manufacturers Prefer International Factoring Thanks to factoring, Step Carpet could grow their Exports significantly. Step Halıcılık ve Mağazacılık San ve Tic A.S. is a well-known brand of contemporary rugs with boutiques in London, Paris, Milan, İstanbul, New York, Dubai and many other design capitals of the world. Step Carpet focuses on the design and manufacturing of modern, fashionable rugs and home accessories. Combining traditional rug-making techniques with new technology, Step is known as a pioneer in the interior design business with innovative collections inspired by the latest fashion, colors and textures. Step Carpet s strategy is to expand their business to further European markets. TEB Faktoring as Export Factor was recommended and introduced by one of their clients, İpliksan Isparta İplik San A.S, to Step Carpet, which shares the production facility with them. New debtors from Germany and the Czech Republic were requiring longer open account terms in place of L/C s. After a positive assessment, TEB Faktoring was able to offer a full notification export factoring facility to Step Carpet. In 2012, Step Carpet decided to sign an export factoring agreement with TEB to utilize their international factoring services, which includes the following benefits: 100 % credit protection against customer insolvency default backed by FCI Import Factors. Outsourcing of the receivables ledger bookkeeping workload and local collection services provided by Import Factors abroad. Short-term advances against the factored accounts receivable provided by TEB Faktoring. Since then, thanks to the excellent service provided by TEB Faktoring and its Import Factor correspondents, Eurofactor AG in Germany and Factoring KB in the Czech Republic, Step Carpet has successfully exploited new markets, increased their export business, and solidified their supplier relationships. For Step, international factoring has been a useful financial tool which will enable them to generate an additional projected turnover of EUR10 million in 2013.

3 Reverse Marketing offers Playshoes enhanced growth opportunities Playshoes Gmbh is a wholesaler of products for babies and children, especially shoes, rainwear, swimwear, accessories and toys. The family owned mid-sized company was founded in 1998 in the south-western part of Germany and the brand is well-known for its high quality fashion collections and certified products. The items are designed and developed by clothing and toy engineers in Germany while the production has been outsourced to external manufacturers in China and Hongkong. The buyers are online shops, mail order companies and specialized retailers in Germany and further western European countries. In 2009 Playshoes concluded a domestic and export factoring contract with Eurofactor AG, one of the leading German factoring companies. Playshoes could constantly expand its customer portfolio and grow its business volume ever since. In a regular meeting with Eurofactor AG it turned out that Playshoes was interested in getting more flexible payment-terms from its Asian suppliers. Up to that time Playshoes had to pay 50% of the order volume in advance and the remaining balance under O/A terms of days. In order to optimize its working capital position, Playshoes was hopeful to negotiate with its suppliers O/A terms of 120 days for the full invoice amount without making any advance-payments. As Playshoes is having a solid credit standing, Eurofactor AG could grant a substantial credit limit on the company, backed by a credit insurance policy. After the company had talked to some of its main Asian suppliers, the two biggest manufacturers showed interest in the 2-factor export model. As a next step Eurofactor AG approached two experienced FCI factoring correspondents, DBS Bank Ltd. in Hong Kong and China CITIC Bank in Beijing and introduced the suppliers names and business details to them. After an internal credit investigation and a successful negotiation concerning the conditions, the export factors could close a factoring contract with the suppliers. Based on the 100% credit risk protection and the confirmation by Eurofactor AG to the export factors that Playshoes will fully pay the suppliers invoices on due date without any deductions, the export factors are now advancing up to 95% of the invoice amounts to the exporters, available on the date when the invoices are assigned to the factors. The transactions have started in the beginning of 2012 and have developed very well ever since. It is a multiple win-win solution for all involved parties: - The importer Playshoes has achieved the required extension of payment-terms which partly have been passed on to its buyers. - The exporters in China and Hong Kong are receiving immediate funding against their receivables, an entire risk-coverage facility and the perspective to further increase their turnover with Playshoes. - DBS Bank has already been able to include further foreign debtors in its export factoring contract with the supplier, backed by FCI correspondents in other countries. - In the meantime Eurofactor AG has received from Playshoes requests for further new suppliers in China and Malaysia to be included in the Reverse Marketing program.

4 MAC Carpet FCI on flying carpets around the world MAC Carpet is one of Egypt's top exporting firms, with more than 90% of its total production going to 107 countries worldwide. MAC Carpet is a sister company of the Oriental Weavers Group, one of the largest private industrial conglomerates in Egypt with diversified activities in numerous fields. 1980: MAC Carpet was established with a capital of US$1million and a total annual production of 1 million square meters of carpets and rugs. 2010: MAC Carpet is now considered a world leader in the carpet industry for custom tufted and digital printed carpets and rugs specifically produced to meet each and every client's demands. With 30+ years experience, the firm now boasts an outstanding annual production of 58 Million square meters, operating around the clock and employing over 6,000 people. Our success must be contributed to our most talented and dedicated staff and the support of tremendously loyal customers and suppliers as stated by Mr. Alaa Hashem, Board Member of MAC Carpet during the first meeting with EGYPT FACTORS. MAC Carpet was dealing directly with foreign factoring companies for many years to sustain their needs in many of their buyers markets. However with the 2008 financial crisis they were faced with the problem that access to finance was shrinking (particularly in US and Canada their main export markets) while at the same time, the risk of buyers default was increasing. This is when the very experienced management decided to explore alternative options to finance and protect their exports with EGYPT FACTORS the first Egyptian private factoring company developed by FIMBank (leading bank in trade finance solutions), CIB (largest private bank in Egypt) and IFC (member of World Bank Group). EGYPT FACTORS introduced MAC Carpet the benefits of dealing with a member of Factors Chain International (the leading worldwide network of factoring companies), which would result in a onestop-shop solution for exports to more than 60 countries with a full package of services (risk protection, collection and finance). Exporters have the option to pick any combination to match their specific needs. Based on credit limits secured by our FCI partners in both Canada (National Bank of Canada) and US (BB&T, UPS and CIT), EGYPT FACTORS was able to offer MAC Carpet a package of full factoring services, of which the most important feature was financing said Mr. Marius SAVIN, General Manager of EGYPT FACTORS. We were very happy that during these difficult times factoring services were still available in Egypt via EGYPT FACTORS, with the assistance of their partners in the FCI network. We feel that EGYPT FACTORS services are professional and reliable, said Mr. Ayman Refaat, Treasurer of MAC Carpet.

5 How FCI Helps Deliver Quality To Your Kitchen Factoring in Hong Kong and the Guangdong Region of China has become an increasingly popular form of finance. Never has factoring been more important than now, in this period of economic uncertainty and tumultuous international financial markets. Factoring provides the financial flexibility and risk mitigation to help many manufacturers and exporters survive and even thrive in today s economic climate. Brand & Mark Industrial Limited ( B&M ) started its business in 2000.Based in Hong Kong with a manufacturing facility based in Shenzhen, the company engages in plastic injection molding, silicone molding, and metal stamping to manufacture nylon kitchen utensils, silicone bake ware, kitchen tools, cutting boards, and seasonal items for major retailers and OEM customers of leading brands in the North American and European markets. The 220,000 square foot manufacturing facility in Shenzhen is filled with state-of-the-art injection, compressing, and stamping machines and employs over 600 well-trained and dedicated employees. The company is focused on providing safe, high-quality products who seek a stylish, functional array of products at a reasonable price. With China entering the WTO, B&M employed an international management style coupled with an entrepreneurial spirit. The result was a small-scale factory evolving into one of the leading plastic and metal manufacturers in China with a heavy emphasis on export-oriented sales. With this new focus, came new challenges. B&M sought the export factoring services of FCI member DBS Bank (HK) Limited, in 2006.The initial need was to obtain credit cover on USA customers, particularly those with long payment terms. Since then, B&M has added many new customers in the USA, Canada and Europe. DBS works in partnership with multiple FCI Import Factors to facilitate B&M s international trade. This factoring service provides flexibility on cash flow which facilitates the substantial growth of B&M states Stanley Fong, Managing Director of B&M. The professionalism of Factors Chain International (FCI) also helps B&M recognize the financial strength of potential customers which further lowers the business risk of B&M. With the support of factoring services, B&M can step forward in expanding its customer base in a favorable way, Mr. Fong added. The next time you are preparing a meal in your kitchen, you might want to take a further look at that utensil in your hand. It just might be a B&M product, made in Shenzhen, China, and factored by FCI all the way to your kitchen.

6 EXPANDING MARKET REACH THROUGH THE FCI TWO-FACTOR The food additives and ingredients industry in China has seen rapid growth in recent years, producing annual increases of 10%. Current output now stands at more than 200 million tons a year, which value accounts for 15% of China's international trade volume. The specialized technology and management of the industry are regarded as state-of-the-art. Of the more than 200 widely recognized producers of food additives in China, Longcom Enterprise Ltd, which imports and exports food and feed additives, pharmaceuticals and chemicals, is one of the most successful midsize companies in the sector. At its inception in 2002, Longcom pledged to spare no effort in implementing its business development strategy of building up its own brand label in close cooperation with leading companies worldwide and providing quality 'green' products and outstanding service to its end users. As of today, Longcom has supplied more than 310 products to 411 purchasers - many of whom are on the Fortune 500 list - in over 50 countries. In conjunction with the rapid growth of the global food industry, the food and feed additives sector has become a booming 'rising sun' industry. Its global market presence has swelled by 2.5-4% a year with the major buyers located in the US, Europe and Japan. To take advantage of the new markets, Longcom considered offering Open Account payment terms to its trading partners because the traditional Cash on Delivery and/or Letter of Credit conditions were gradually becoming unacceptable to overseas buyers. Aware of the obviously promising business opportunity on the one hand, and concerned about querying a prospect's current credit worthiness and what to do if a buyer fails to honor payment obligations when the receivable comes due on the other, Longman was undecided about piling up accounts receivable by using Open Account terms. Longcom's doubts came to the attention of China Merchants Bank (CMB), the second largest export factor in China, which specializes in providing feasible international factoring solutions to help Chinese small and midsize businesses promote their products in overseas markets. In late 2007 CMB approached Longcom and explained that by working together with selected members of Factors Chain International (FCI), the use of the two-factor system would provide the bank's strategic client with buyer's credit risk protection, collection and ledgering services, as well as immediate liquidity if needed. Longcom decided at once to utilize CMB's full factoring service. Since then Longcom has successfully exploited new markets in Japan, Singapore, Thailand, Poland and Germany thanks to the considerate and professional service rendered by CMB and its overseas factoring partners, among others, SMBC, DBS Bank, Kasikorn Factoring, Nordisk Factoring and Eurofactor. In addition, Longcom has skillfully eluded exchange rate risk and significantly improved its cash flow by obtaining finance from CMB after assigning its receivables. The international factoring solution not only greatly benefits Longcom, but also helps its customers to cut overhead costs. "We are delighted to report at year-end that our bank's factoring service facilitated a substantial part of Longcom's business expansion in the difficult year 2008, despite the unprecedentedly fierce financial crisis that swept into almost every corner of the world," said CMB's client manager Mr. QI Ruhu with a smile.

7 Ideal Bike Corporation-Factoring through FCI in Both Ways For decades Taiwan has enjoyed a reputation of being the world's "kingdom of bicycles", particularly as leader in terms of manufacturing quality and average unit price. Amongst the numerous bicycle manufacturers in Taiwan, Ideal Bike Corporation is one of the oldest and the largest. Established in 1980 and aided by a successful IPO in 2001, Ideal Bike now assembles and sells over 1.1 million bicycles worldwide from the group's factories in Taichung (Taiwan), Dongguan (China) and Kutno (Poland). Ideal Bike is not only an OEM partner for global name brands but also has a vivid strategy to introduce its partnering brands through continuous R&D and marketing. The global bicycle market has entered into a stage of "maturity". Although high oil prices in recent years have contributed to an increasing demand for bicycles, the industry has a low growth rate of 3% ~ 5% per annum. For bicycle manufacturers like Ideal Bike, the oversupply and keen price competition has put the exporters under pressure to offer the most attractive payment terms. Letters of Credit and cash upfront are becoming rare and instead, "open account" is now the norm. Fuelled by occasional adverse financial news and insolvency events among the major buyers in this market, Ideal Bike has decided to use international factoring to hedge itself against the financial risks of selling on open account terms to foreign buyers. Ideal Bike has been an important client of HSBC (Taiwan) for several years and the company immediately expressed interest when HSBC introduced international factoring services in Taiwan in cooperation with FCI (Factors Chain International). Through HSBC's networking with FCI members, Ideal Bike enjoyed a package of services, including credit checking, invoice assignments, payment collections and ledgering, which greatly improved its monitoring of overseas customers' receivables. In addition, because of HSBC's recent acquisition of Chailease Credit Services Co., Ltd. (now HSBC Factors Taiwan Limited) in 2007, HSBC has elevated its international factoring service to a higher level of professionalism. The financial manager at Ideal Bike, Miss Julia Lai adds the comment: "Because most of our customers are outside Taiwan and as we have to sell on O/A terms, we greatly rely on HSBC's export factoring service through their FCI correspondents in the US (Wells Fargo Century Inc.), Europe (GE Factofrance in France and Fortis Commercial Finance N.V. in Holland), and Japan (Mizuho Factors, Ltd.). We feel their factoring service is very professional and reliable." Apart from the use of export factoring, Ideal Bike recently became a user of import factoring services to facilitate open account purchases from a key supplier in Japan. Due to the strong market demand for specialized bicycle parts, for years Ideal Bike had to buy on "cash on delivery" terms with this Japanese supplier. By the end of year 2007, Ideal Bike finally persuaded the exporter to switch to open account terms. By buying on unsecured open account trade credit, Ideal Bike does not have to block its bank lines any longer. The change in procurement terms gives Ideal Bike much more financial maneuverability. Simultaneously, thanks to the factoring services through FCI, the Japanese exporter has gained a long-term confidence in working with Ideal Bike as buyer. Ideal Bike indeed benefits from FCI's export factoring as well as FCI's import factoring services. On the export side, Ideal Bike can sell on open terms competitively without having to worry about foreign importers' credit standing; on the import side, it enjoys all the benefits of unsecured open account purchases. It's quite fair to say that Ideal Bike is a perfect example of a company using factoring services to maximum benefit.

8 SC Torent Computers SRL (Torent) SC Torent Computers SRL (Torent) is a Romanian company established in The company sells and distributes assembled computers, imported IT spare parts, and IT products and is involved in maintenance and consultancy services for technical equipment sold. The company is located in Constanta, a major city on the Black Sea Coast, and is the market leader in its local area. In 2005, BRD-Groupe Société Générale approached the company in order to propose a domestic factoring facility for their local sales. The company management, a young husband and wife with an extensive background in the IT area, was very open to a factoring solution. Their need was to improve their cash flow as their client base was comprised of many small companies that often paid late. A domestic factoring contract was signed and operations went smoothly without any commercial problems or disputes. Based on a positive factoring history and seeing that the majority of the company s imports were paid in advance, BRD-Groupe Société Générale approached the client to discuss import factoring. Torent talked to their foreign suppliers and explained the benefits of factoring. In this transaction, BRD-Groupe Société Générale would guarantee Torent Computers ability to pay and Torent would get open account terms. The company quickly understood that based on BRD s support, Torent could import larger volumes from its suppliers on open account. Additionally, the foreign suppliers could receive advances against the sales from an export factor and not need to worry about the risk of non-payment. BRD gave the client the list of FCI Correspondents in their supplier s country and Torent provided BRD its list of suppliers. The suppliers were introduced to the FCI correspondents and a factoring relationship was started. In this way, four suppliers entered the program: P.Q.I. (Power Quotient International Co. Ltd.) located in Taiwan, through Chailease Credit Services Co. Ltd., Taiwan Aci Technologies Europe SA/NV from Belgium through Fortis Commercial Finance N.V., Belgium Xpert Vision Gmbh from Germany through Fortis Commercial Finance Deutschland Gmbh, Germany SDT Information Technology from Korea, through Industrial Bank of Korea, Korea. This reverse marketing transaction allowed BRD-Groupe Société Générale to expand its relationship with Torent by creating the possibility of increasing their level of imports without any cash flow constrains. It was one of the first import factoring transactions of BRD and it strengthened their relationship with the various export factors involved in this transaction.

9 How co-operation between two FCI correspondents and an importer can lead to good business for all One of the biggest medicine distributors in Chile, and the largest supplier of the Chilean State Hospital system, imports medicines from countries like India, China, Korea and Brazil, normally against the opening of letters of credit (L/C). Total imports during year 2004 were USD 11.4 million. Initially in 2002, Factorline in Chile was asked by Global Trade Finance (GTF) from India to preliminary assess a credit line of USD 1,000,000 for this Chilean importer. As a result of the assessment, Factorline was able to approve a credit line of USD 600,000, but unfortunately GTF did not succeed in convincing the Indian exporter to sign the factoring agreement. At this stage, Factorline had developed a good relationship with the importer, who had well understood the benefits of using international factoring and open account terms for their imports, instead of opening letters of credit. As Factorline maintained an approved but unused credit line for the importer, it was decided with the agreement of the importer to contact his main supplier in China. This was done through Bank of China s Factoring Division, which would act for this business as export factor. Bank of China explained to the supplier how the Two-Factor System works and highlighted the benefits for the exporter, who then signed the factoring agreement some days later. The importer has seen in international factoring a new financial tool, which supports his daily business. The current approved credit line is permanently in use and since the beginning of the arrangement, invoices for more than USD 3.5 million have been assigned, resulting in many benefits for all the parties involved.

10 Austral Foods: A Visit from the President Austral Food is a leading Chilean seafood exporter whose success has been enhanced by their use of international factoring. International factoring has allowed the company to diversify its business and grow export sales through credit risk mitigation and cash flow enhancement. Austral Food S.A. was founded in 1998 by two young and energetic entrepreneurs who had the intention to provide high quality seafood products to the demanding international markets. Their hard work over the past 5 years was rewarded with a visit from Chile s National President, Mr. Ricardo Lagos, in mid Mr. Lagos cited Austral Foods as an example of how medium-sized companies can achieve success through the export of Chilean products. He suggested that other Chilean companies can achieve similar success when tapping into international markets. The operations of Austral Foods initially focused on the shipment of salmon and Chilean sea bass to the North American market. However, Austral Foods quickly grew through the diversification of its product portfolio and is now one of the leading Chilean seafood exporters. The company s products now include, in addition to Chilean sea bass and salmon, trout, Whiting, swordfish, black, golden and red king clip, elephant fish, and smelt, among others. Because of its expanded portfolio of products, Austral Foods has been able to successfully sell and market to global customers in countries such as Australia, Spain, France, Brazil and Mexico. Austral Food employs more than 100 people and had total exports of US$ 6 million during the 2003 year. Their facilities include a brand new wholly owned plant in Santiago de Chile, which was opened in 2003 after passing a vigorous health inspection required before being allowed to export product globally. The company also partially owns two other processing plants in Chile. The facility located in Concepción primarily processes white meat fish (sea bass, swordfish, etc.), while the plant in Puerto Montt concentrates on the production of salmon and trout. Mr. Baeza, CEO and one of the company s founders said, Most of Austral Food s success is based on our high quality seafood products and our aggressive marketing and sales policy, which includes offering open account terms to our international buyers. This means that we require protection against the insolvency of our foreign customers and a method to collect our international receivables. Further, finance against our foreign sales is required in order to enhance cash flow and re-invest in the growing business. Austral Foods selected FactorLine, S.A., a Chilean member of Factors Chain International, to assist with the risk mitigation, collection, and financing of their foreign accounts receivable. FactorLine was able to provide all of the required features, thanks to the two-factor system utilized in cooperation with the correspondents of Factors Chain International. Mr. Baeza continues by saying, International factoring has provided our company with fantastic support, as it allows us to focus our efforts on production, marketing and sales rather than buyer credit risk, collection and financing."

11 Kenmark s Expansion into Australia Based in Taiwan, Kenmark Industrial Co., Ltd. is an international trading company specializing in the sale of hardware, tools, home furnishings, gardening accessories, electrical & electronic products and general merchandise. The Company is also a manufacturer of ready to assemble products, such as computer workstations, audio-visual and CD stereo cabinets, television cabinets, and game stations. Kenmark was a small sized trading company when established in 1978, but now has production facilities based in Malaysia and marketing subsidiaries in Hong Kong, Malaysia, Singapore, Japan, Europe, New Zealand, Australia, the U.S.A. and Canada. In 1992 Kenmark planned to take a big step by penetrating the home furnishings, gardening, and electronics markets in Australia. Coles Myer, the largest retailer in Australia, was very satisfied with Kenmark s quality products but required Kenmark to provide the logistics and after-sales service locally. It was a great business opportunity, but also a big challenge to us. Mr. James Hwang, the Chairman of Kenmark recalls. I needed to establish a subsidiary in Australia to fulfill my buyers inventory requirements, distribution and after-sales service. However, I also had to consider other issues before undertaking this expansion, such as how to obtain funding support, relieve the burden of debt collection and manage the potential credit risks raised by trading on open account terms. In order to solve these problems, we contacted several Taiwanese banks and financial institutions for a solution, says Mr. Hwang. We knew what we needed but it was very difficult at that time to find a partner to fully satisfy our needs. Fortunately, after evaluating Kenmark s business model, Chailease Credit Services Co., Ltd. located in Taiwan and Scottish Pacific Business Finance Pty Ltd. in Australia, jointly provided a back-to-back factoring programme to match Kenmark s needs. Under this programme, Chailease arranges immediate funding on a with-recourse basis against Kenmark Taiwan s export sales to its subsidiary company in Australia. At the same time, Scottish Pacific provides the collection and risk coverage services of the subsidiary s local Australian sales. Kenmark is also now utilizing Chailease s export factoring service, which provides funding, credit protection and collection of foreign invoices, for Kenmark s sales to Asia and Europe. By being able to offer open account terms at the request of its foreign buyers, Kenmark s Australian sales volume, which was AUD 2 million at the beginning of 1992, increased to AUD 20 million in According to Mr. Hwang, The factoring service strengthened our working capital, helped us collect foreign accounts receivable, and freed us from the worry of any credit risk of approved buyers. Mr. Hwang concludes, We re fully confident about the future as we not only have excellent products and services, but the factoring programme is also helping us continually focus on improvement of sales and service quality, which will enable us to move ahead of our competitors.

12 From Anatolia to the World s Major Automotive Manufacturers For almost half a century the CMS Group has endeavored to improve its service to global markets. The company continues to strive for constant innovation and set higher goals in every field. At CMS, our basic philosophy is to do our part in setting an example of excellence and contributing our knowledge and expertise to society, says Mr. Tonguç Ösen; the founder who created the CMS brand in a small workshop. We manufacture light alloy wheels for man s great passion: The automobile. The wheel is integral to the performance of the automobile; therefore it must be flawlessly produced. Thanks to our principle of technological excellence, we create customer satisfaction by transforming new designs into technical realities that reflect consumer tastes and meet their needs and today s demand for high-performance products. We are the technological leader for light alloy wheel production and service in Turkey. In fact, today the CMS brand successfully competes in the global allow wheels market. In addition to accomplishing its goal of global technological growth through the application of the concept of continuous improvement to both the production and the sales process, CMS is also fulfilling its responsibilities by providing expertise, excellence and reliability. CMS began the production of light alloy wheels in 1985, in order to create an international brand. Over the next 10 years, CMS supplied wheels to the Turkish market, as well as to major automotive manufacturers throughout the world. At present, CMS is certainly the Turkish market leader. They are now working steadily to become an even greater recognized brand in the global market. Having produced 1,500,000 wheels in 2000 (80% export), CMS increased its production capacity to 2,000,000 in 2001, and will be increasing it to 3,500,000 in With its outstanding production quality, CMS today is the first choice and primary partner of several major automotive manufacturers. The firm supplies several automotive manufacturers such as Renault France, Fiat Auto SpA and Alfa Romeo Italy. Furthermore, they export to countries such as Germany, Belgium, the United Kingdom, Greece, Portugal, Egypt, Denmark, Holland and Russia. One of the obstacles of selling into export markets was their customers reluctance to work on letters of credit. Determined to overcome this problem, in 2000, CMS began to use the factoring services to Koç Faktoring and Yapi Kredi Faktoring, two Turkish FCI members. Factoring not only allowed the company to sell on open account terms without the fear of bad debts, but also provided them with immediate cash flow against their export sales. By being able to offer more attractive buying terms to their customers, their export volumes grew even faster and by the end of 2000 the firm had reached USD 53 million in sales, a very impressive growth rate indeed! In 2001 the firm s sales continued to increase as they achieved gross sales of USD 55 million. Since the beginning of the contract, Koç Faktoring and Yapi Kredi Faktoring have provided the company with credit protection, collection services and the necessary funding to provide the working capital required for growth. As a result, according to Mr. Ösen, The cooperation with the two factors has allowed us to increase our exports with confidence and focus our work on the improvement of the production quality and sales and services, as opposed to risk management, collection and cash flow concerns. Overall, the export factoring facility allows us to focus on our core business as well as our philosophy that requires dedication to continuous improvement.

13 The world tastes Cremaschi wines thanks to Factoring Cremaschi is one of the youngest and most successful Chilean boutique vineyards. Currently, they are exporting to 12 countries around the world and are starting to penetrate new markets such as Eastern Europe and Asia. The Chilean wine industry holds a privileged place in the world market and its wines are recognized as among the best in the world. The international prestige of Chilean wines is founded on the country's soil and climatic conditions, which are exceptional for wine grape cultivation, and on a winemaking tradition that has been developed for more than four centuries. Today, there are in Chile more than 80 vineyards, where Cremaschi is one of the youngest, but most successful. The wine tradition of the Cremaschi family goes back to the late XIXth century in Italy. In 1990, the Cremaschi family brought to Chile more than a century of wine cultivation experience from their motherland, surprising all the wine producers of that time. Throughout the years they have enhanced their knowledge with new wine processing systems and devoted themselves to the production of fine wines. Cremaschi has been defined as a boutique vineyard focusing on a selective and careful production, which guarantees the excellence and quality of its products. A team of wine experts control step by step the delicate process that wine undergoes. Mr. Pablo Cremaschi, the company's Chairman, explains to us that, "in this way, we are certain that we will obtain wines which will meet the most stringent requirements and delight the most demanding palates". The company started to export in 1996 and achieved a modest volume of USD 84,000 in this first year. The export volume then grew year after year and by 1998 they had reached the USD 500,000 level. One of the obstacles to selling into export markets was their customers reluctance to work on letters of credit. Determined to overcome this problem, in 1999 Cremaschi began to use the factoring services of FactorLine, a Chilean FCI member. Factoring not only allowed the company to start to sell on open account terms without the fear of bad debts, but also provided them with a positive cash flow on their exports. By being able to offer more attractive buying terms to their customers their export volumes grew even faster and by the end of 2000 they had reached the USD 2.5 million, a very impressive growth rate. This year they expect to hit the USD 5 million milestones. Since the beginning of the contract, FactorLine has continued to provide them with credit protection, collection and the necessary working capital that, as Mr. Cremaschi says, "allowed us to increase our exports with confidence, focusing our work on the improvement of the wine quality, bottling and sales, rather than risk management, collection and cash flow worries". Cremaschi exports wine to 12 countries - not only to traditional wine markets like Germany, USA, UK, Denmark and Japan, but also to some new ones like Hungary, Thailand and Malaysia. Mr. Cremaschi smiles and says: "I am squeezing FactorLine trying to obtain more benefits and services than are usually delivered. Through FactorLine and its FCI correspondents, I am looking for new worthwhile buyers around the world".

14 Merida Moves up a Gear with Factoring Merida Industry Co. Ltd., based in Taiwan, is one of the world s leading bicycle manufacturers. The company specializes in the manufacture and distribution of sports bikes and mountain bikes and also makes use of its expertise in magnesium coating to produce various 3C products. The company was established in 1972 and now has production facilities based in China and marketing subsidiaries in Japan, Australia, Austria, France, Italy and the UK. The company now employs more than 1,400 people around the world and has an annual turnover of USD 200 million. Their products have been awarded the Gold National Award of Excellence and the Symbol of Excellence. As with most industries success doesn t come easy. The bicycle industry is extremely competitive; the profit margins are low and customers demand open account terms with a period of credit. One of the big worries in such circumstances is the possibility of bad debts. Mr. Michael Tseng, the company s General Manager, comments, I had tried several ways to protect my company from bad debts and at the same time satisfy the demands of our customers. There are several similar services in the market and we had used credit insurance for many years. However, factoring appeared to be a more flexible and attractive solution than the other options so we gave it a try. The company started factoring with Taiwan based FCI member, Chailease Finance Co. Ltd in 1996 and has been very satisfied with the results. Having access to credit information on customers based in various countries around the world means that they can plan their production and business more effectively. They do not waste time producing products for customers that may not have the ability to pay for them. I can make business decisions quicker than before based on the advice from my factoring company, Mr. Tseng says with a smile and adds, those businesses that are uncertain about whether or not to sell on open account terms should be careful. There are other suppliers out there that are hungry for the business and they just might take it from you. Factoring has allowed us to move ahead of our competitors. Competition is a never-ending battle but Merida is full of confidence about the future. All manufacturers try to appeal to their customers with excellent products and reasonable prices but we do more. Through factoring we are able to increase our customers buying power, Mr. Tseng proudly points out.

15 Manfred Reiner Röhren - Stahlhandel GmbH., Germany Factoring helps German steel exports. When Mr Manfred Reiner Röhren started his business 20 years ago, he was confident that his professional education in international trade and his business experience would ensure success. His knowledge of the steel industry, in particular steel tubing, and his excellent business connections helped him to quickly become established. During the first 10 years he acted as an intermediary between the steel producers and the various buyers. This was an excellent way to start as there was no need to hold stocks of the products. However, as the business developed he needed to establish his own warehousing facilities. In 1986 he purchased some land near Nürnberg, Germany and built his own warehouse and head office facilities. The company, Manfred Reiner Röhren - und Stahlhandel GmbH., has been there ever since. The company specialises in the trade of hot rolled seamless steel tubes which make up about 90-95% of the company's turnover. Other steel products make up the balance. The company was one of the first to develop close links with the producers in Eastern Europe, where prices are competitive but standards are still high enough to meet German Industrial Norms (DIN) requirements. Today, the company is a specialist importer and proudly holds a number of exclusive distribution agreements, especially with producers in the Ukraine. The customers are now mainly made up of large distributors that are able to purchase in bulk. Close cooperation with the forwarding companies combined with warehousing facilities in Bochum, ensures customers needs are met promptly. The customer base is reasonably well diversified and 60% of the sales are exported to Western Europe. Further expansion in sales overseas is confidently being predicted. In order to keep down own administration costs and to fund the continued expansion of the business, Reiner took up a full factoring package from Deutsche Factoring Bank. This provided a collection service and credit protection for the bulk of his exports. The export business handled by the factor increased from under 5 million DEM in 1995 to in excess of 10 million DEM by 1998 with further expansion being forecast. "Export factoring has certainly helped us to expand our international business and will become even more important when we supply to the more distant markets", says the exporter. "The credit risk protection facility combined with a steady flow of funding allows us to offer payment terms of between 30 and 90 days as requested by our customers. The use of the two factor system facilitated by FCI, has meant that we have been able to obtain professional credit assessment and collection services in a number of different countries. The level of knowledge and expertise of our Export Factors' staff makes our cooperation with them very satisfying and pleasant." The Export Factor adds, "Working with such an efficient and expanding exporter is also very satisfying not only for us, but also for the various Import Factors that work on behalf of the exporter."

16 Tex UK Ltd., United Kingdom Tex UK Ltd. is a successful UK based business specializing in sourcing textiles from various parts of the world for sale on to the major retailers in both the UK and overseas. The products handled are mainly within the household textile area and include towels, bathrobes, cushion covers etc. The major supply areas are China, Turkey, Portugal, Spain and Egypt. Five years ago, when Tex UK Ltd. first started buying from China, they had to do on the basis of letters of credit. This was fine to start with, but as volumes grew they found the system to be cumbersome and inflexible. The company also had to provide their bankers with security in order for the LC's to be confirmed. Even for a successful company, there comes a time when the growing requirements for LC coverage exceed the security available to give to the bank. This happened around three years ago. The company had to find a way of buying on open account terms with a minimum of 60 days credit, if they were to continue to grow. Whilst they had built up good working relationships with their suppliers, the move to open account was not acceptable. The risk to the supplier of non-payment was thought to be too high. Tex then turned to the UK factoring company, Alex Lawrie, for an alternative solution. A credit line was established on the company by the UK factor and passed on to the Bank of China's factoring division who in turn offered it to the Chinese exporter. By using the two- factor system the exporter was able to sell on open account terms with credit, secure in the knowledge that they had 100% protection against non-payment due to the customer's inability to pay. Eighty percent of the invoice value was also made available to the supplier as an initial advance, providing a real boost to their cash flow. Many businesses now understand the benefits of export factoring as enjoyed by the exporter, but few recognize the very positive effect that it can have for importers. Mr. Jeremy Smith, Joint Managing Director of Tex UK Ltd. comments: "It is an excellent arrangement, it is like having an extra bank facility available to us, it has certainly helped us to increase the volume of imports from China, so I guess our suppliers are very happy about that". Tex have now expanded the use of the two-factor system and are working with five suppliers in China in this way. They have also started to use the system for some imports from Turkey. Mr. Smith understands that his suppliers may build the cost of factoring into their prices but he sees this as an advantage in some ways. When he places an order, he is quoted a price delivered and does not then have to work out the additional costs of the LC handling charges etc. One of the concerns that the suppliers had in moving away from LC's was the issue of contractual disputes; they believed that they were fully protected from this with LC's. The reality is that the majority of LC's are not actually fully complied with and therefore their security could be challenged. The second point Mr. Smith makes is that, in five years of trading with these suppliers, there have only been two occasions where the goods supplied have not quite been to order. In both cases the situation was resolved quickly and to the full satisfaction of both parties. As an importer, Tex now uses the FCI two-factor system as standard procedure with any new suppliers they find in China. It is clear that customer acceptance of factoring is now no longer an

17 issue, indeed, importers are now starting to demand that they receive the benefits of export factoring. As we enter into the 21st Century, the evolution of factoring continues. Not only does it now provide businesses with finance and credit protection services, but it has also become a very powerful marketing tool for exporters.

18 The UMAX Corporation, Taiwan While the global market for computer products continues to show dramatic growth, it has traditionally been dominated by multinational companies. Competition is fierce and given the size and importance of buyers, exporters are obliged to trade on open account terms. It was against this background that Umax entered the arena back in Established in Taiwan as a manufacturer of computer scanners and associated products, the company knew it would have to be highly competitive if it was to make a serious impact on important new markets, particularly in Europe. One of the reasons that Umax has become one of the best known names in its industry, is that it has an excellent reputation for quality products. Umax has won the Creative Product Award for SBIP and products have been awarded the Editor's Choice by Office Technology Management Magazine several times. In 1995 the Umax Vista range was honored with the German IF Award, the world's most prestigious award in this field. No matter how good your range of products, success is also dependent on your ability to offer appropriate credit terms. This is why in 1990, Umax changed their sales strategy to suit individual markets. The company set up a marketing division in the USA to take cash payment orders from local customers. But to develop the huge potential in Europe, particularly in Germany, The Netherlands and Scandinavia, Umax decided to use a factoring service as a means of removing the uncertainty of credit risk and providing immediate cash to finance future growth. The use of letters of credit was also a less attractive option to the buyers as they would have needed to have committed part of their banking facilities to support them. The decision to switch to factored sales in Europe has certainly been justified. In terms of business volume, sales in Europe have outperformed those in the USA. Between 1990 and 1994, export factored sales always accounted for at least 30% of Umax sales to Europe. In 1992, the business growth rate soared to a record 285%, in the same year Umax started working with Agfa as an Original Equipment manufacturer - a contract that greatly contributed to the company's outstanding business growth. More recently though, the computer equipment industry has had to adjust to difficult trading conditions with prices becoming more competitive as the purchasing power of buyers has decreased. While many large importers have suffered because of these circumstances, Umax have enjoyed credit risk protection through factoring and have benefited from payments under guarantee when some buyers have been unable to pay for their supplies. Without the worry of credit risk and financial burden, Umax has grown to become one of the world's largest suppliers of scanners. It now intends to expand its product line to top-end personal computer products.

19 Shimano Industrial Co. Ltd., Japan Shimano's long history began in 1921 as a manufacturer of free wheels. Today it is one of the most prestigious producers of bicycle components and fishing gear. The philosophy of "keeping man and technology in harmony with nature" is reflected throughout Shimano's innovative product range - a range now used widely by demanding cyclists and sports fishermen in many parts of the world. Shimano employs nearly 1000 people and enjoys world-wide sales of more than USD 1 billion per year. The business is increasingly export orientated and in seeking to exploit fresh market opportunities wherever they arise, Shimano first signed an export factoring contract in 1984 in order to obtain full credit risk protection on Scandinavian importers with whom the company had not dealt before. Shimano is now using export factoring for sales to many countries and sees it as a considerable element in their success overseas. Or as a spokesman for the company says: "It is an inexpensive and efficient way for a business to take advantage of export opportunities and to save time, staff resources, costs and difficulties. We have improved cash flow and a financial facility which grows in line with our sales. We have reduced the risk of bad debts and saved on administrative overheads which otherwise would have been incurred in sales ledger work, credit investigation, and debt collection. We can now make more cost effective use of our management time and expertise, all of which improves our competitiveness and enhances our own trading prospects". Shimano has recognized that size and product reputation alone do not necessarily overcome some of the problems encountered in cross border trade. The benefits of an export factoring agreement with a Japanese Export Factor and the resulting access to the world wide FCI network are now an integral part of the company's overseas success.



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