Factoring - a risk-free alternative to finance

13.04.2007

 by Malcolm J. Naudi
Extract taken from The Sunday Times dated 8th April 2007

Supliers whose goods and services are settled on open account terms with their clients, both export and domestic, can benefit from factoring services which FIMBank plc, the trade finance bank that is listed on the Maltese Stock Exchange, has just launched.

According to Marius Savin, FIMBank vice-president, who heads its Mediterranean Factoring team, this service enables the suppliers to focus on what they know best - business development and producing their goods and services - rather than wasting resources to chase money owed by their clients and assess risk.

"We are offering a risk-free alternative to financing and a complementary service to the documentary letters of credit system," he told The Sunday Times last week. "Factoring is the fastest growing sector in trade finance and I was engaged last July to expand the bank's activities in this sector both in Malta and other areas in the Mediterranean."

Factoring, he explained, is a package involving invoice ledgering; collection of invoices; risk protection; and the availability of immediate funding.

FIMBank is a member of Factors Chain International (FCI), based in Amsterdam, a worldwide network of factoring companies with 200 members in over 60 countries.

"FIMBank will chase the money owed by foreign clients through local FCI partners without damaging the relationship between the two parties," Mr Savin said. "This is very good value added service when facing business opportunities in foreign markets."

Risk protection can be up to 100 per cent, with FIMBank paying the supplier within a stipulated period if their buyer does not pay. "Our clients get confidence that the money will come at a specific moment in time and avoid booking losses due to bad debts."

Funding is offered as a "sweetener", with up to 90 per cent of the invoice face value.

Factoring services are designed to improve cash flow and secure debt collection, enabling companies to obtain a competitive edge in both domestic and foreign markets. Through this service, suppliers are given the necessary cash to sustain the commercial credit - up to 120 days - as well as to secure outstanding receivables by offering risk protection against their buyers' non-payment.

Mr Savin explained that there are two types of services: non-recourse and with recourse. FIMBank is offering two non recourse packages. The Secure package protects clients against major losses due to non-payment from their buyers; and the Secure Plus package also includes immediate cash availability on their clients' account based on the approved invoices.

Apart from favouring exporters, who could branch out to new markets with renewed confidence, Mr Savin said that these services could also benefit all SMEs - wholesalers, manufacturers and service providers - who by definition have a small balance sheet. "Having good buyers is a competitive advantage to these companies as they can easily access enough funding to sustain their cash flow via the factoring package in spite of their small size," he said.

Mr Savin started his banking career with Demir Bank in Romania in 1997. He started working on domestic factoring the following year and, in 1999, set up the bank's department on an international scale. He also served on the Marketing Committee of FCI for few years.

He believes it is important to educate the market to enable local businesses to be aware of how they can improve their cash flow and secure their debt. "Factoring is all about enabling ongoing, live businesses to continue to grow and give them the confidence and peace of mind from a financial point of view to carry out a wider range of transactions," he said.

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