The World of (International)Factoring

Transcription

1 The World of (International)Factoring Facts & Figures Different Products The Two-Factor System The Role of IFG Erik Timmermans Secretary General IFG 1

2 Evolution of World Factoring Turnover 1980 : +/- 50 billion 1990 : +/- 200 billion 2000 : +/- 600 billion 2010 : +/ billion = 3,48% of World GDP 2

3 30 years in Factoring % world GDP Bn 600Bn 200Bn 50Bn Opportunity stable positive The industry has grown 4 times faster than the World economy over the last 30 years 3

4 Factoring in the World in 2010 North- America ,2% South- America ,3% Europe (986 EU) 77,5% Africa & Middle East ,35% TOTAL WORLD: billion (+ 21%) Source: IFG GIAR 2010 Asia ,3% Australia & NZ ,3% 4

5 Factoring in Africa Activities in South Africa, Morocco, Tunisia, Egypt Starting in Mena region IFG also members in Mauritania, Mauritius, Sierra Leone Need for improved legal framework to make open account more accepted Huge potential both in Domestic as in International Factoring 5

6 Key Industry Figures (from IFG s Global Industry Activity Report 2010) Turnover 2010 : billion + 21,03 % compared to 2009 Approximately factoring companies But 1200 in USA and 1120 in Brazil... Financed amount at year end : 166 billion Factoring Clients : Factoring Debtors : (rough estimate) Employees :

7 World Market Shares end UK and Ireland : 17,03 % 2. France : 11,36 % 3. Italy : 10,65 % 4. Germany : 9,80 % 5. Japan : 7,30 % 6. Spain : 8,37 % 7. Brazil : 4,73 % 8. USA : 3,93 % (without ABL) 9. Australia : 3,26 % 10. Turkey : 2,89 % 7

8 Market Structure Concentration : combined market share of five biggest factoring companies in each country : on average 87 % Bank dominated: combined market share of Top 5 in each country: 38 % : bank subsidiaries 35 % : bank divisions 14 % : independent finance houses 8

9 Factoring is a patchwork! Differences in legal requirements to operate Differences in legal environments for assignment of receivables Differences in products offered Differences in market segments served Differences in pricing Differences Differences Differences BUT : The Fundamentals for factoring are the same all over the world. 9

10 Type of Products 33% 21% 15% 2% 46% 83% Disclosed With Recourse Disclosed Without Recourse Invoice Discounting Domestic Export Import 10

11 Factoring with Recourse Receivable is financed for a maximum period typically 90 or 120 days = recourse period At end of recourse period factor recovers amount previously advanced - from debtor collections or - by not advancing against new debts 11

12 Non-Recourse Factoring Factor grants a credit limit for each debtor Funding is not withdrawn after specific period Trading in excess of credit limit is at client s risk Factor is protecting the supplier against insolvency of debtor Most factors re-insure with a global insurer (e.g. Atradius, Euler Hermes, COFACE) 12

13 Invoice Discounting Confidential service debtor does not know factor owns the debt No sales ledger management by the factor Factor keeps a control account Collections by the supplier Debtor makes payments to bank account in name of supplier but controlled by the factor Very different risk profile 13

14 Other Products in Commercial Finance Reverse Factoring Maturity Factoring Asset Based Lending 14

15 International Factoring 83 % of World Factoring turnover is Domestic Factoring Cross-border factoring continues to grow more rapidly than domestic factoring. Either Direct Export Factoring (Factoring Company deals itself with foreign buyers) Or Two-Factor system (Export Factor uses services of Import Factor in buyer s country) 15

16 The Two-Factor System Export Factor IF exchange: Electronic exchange between factors Credit protection & Collection by Import Factor Import Factor Factoring agreement: Prepayment of invoices/ credit management Invoice collection and debtor credit approvals Supplier Delivery of goods & services Debtor 16

17 Two-Factor step by step 1. Client signs factoring agreement with export Factor 2. Client receives order from debtor abroad 3. Client requests his Export Factor to approve the credit line on the debtor 4. Export factor sends info to Import Factor (info on Supplier, Debtor, Credit line requested) 5. Import factor analyzes and approves the credit request on the debtor 6. Export Factor confirms credit line to his client 17

18 Next steps 7. Client makes delivery and sends invoice to the Debtor with assignment text, instructing to pay exclusively to Import Factor 8. Client assigns receivable to his Export Factor 9. Export Factor pre-pays the invoice (generally 80%) to his Client and assigns receivable to Import Factor 10. Import Factor administrates and collects the debt according to local laws, customs, language, time zone, 11. Debtor pays to the Import Factor 12. Import Factor transfers money to Export Factor 13. Export Factor pays the remaining sum to his client 18

19 In case of non-payment Dispute : Import factor informs Export Factor who has to solve the dispute together with his client and inform Import Factor about outcome Non-payment by the debtor because financial difficulties : Import Factor pays out in full (according to credit line granted) at 90 days after due date of the invoice) 19

20 Advantages of working in Two- Factor System No need for costly/complex letters of credit Up to date local credit information on customer/debtor Local expert (import factor) assumes credit risk Import factor dunning in local language, using local courts, aware of local customs and laws, using skilled local lawyers Import Factors understand your business (e.g. client risks) : they are factoring specialists Bilateral business flows : you can be both export and import factor 20

21 When to consider International Factoring? 1. Importer is requesting Open Account settlement 2. Outstanding balance of A/R has accumulated to a certain volume 3. Importer is requesting to shift either from L/C or advance payment to O/A 4. Importer requests to extend longer payment terms 5. Exporter considers to change to direct business with Importer instead of using a local agent 6. Exporter s overseas affiliate insufficiently manages the risk control 7. Shortage of staff 21

22 Benefits of the two-factor system for the Exporter % protection against the buyer s inability to pay on 90 days past due. 2. Increased sales in foreign markets by offering competitive terms and conditions of payment. 3. Credit lines are in place for buyers, which speed up response time for orders and re-orders. 4. Accelerated cash flow through faster collections. 5. Elimination of time-consuming administrative burden or delays linked with the negotiation of Letters of Credit. 22

23 Benefits to the Buyer 1. Purchase on convenient Open Account terms. 2. Expanded purchasing power without using existing credit lines. 3. Orders can be placed swiftly without incurring the delays, complications and cost of opening Letters of Credit. 4. No additional commission for buyers. 23

24 Factoring vs. Letters of Credit Flexibility Factoring High (Changes can be made between Buyer and Seller) Letters of Credit Low (All changes have to be approved by the involved banks) Buyer s Credit Line Buyer is not required to use its C/L for factoring Buyer is required to use its C/L to open LCs 24

25 IFG s Role in the industry Connecting and Supporting the Factoring & Commercial Finance Industry worldwide: Facilitating cross border trade through two-factor platform Offer training and development programs Create awareness for the Industry in new markets (4 Regional Chapters) Lobby influencers 25

26 Membership evolution countries Sponsors Associated Partners Partners Shareholders 26

27 Thank you for your attention Questions? 27