Faster money through factoring - More SMEs opt for this

Termomont found the way to provide assets earlier for the production, to provide foreign partners more favorable terms for purchase and to get larger orders. This Simanovac-based boiler producer has let to the Agency for Insurance and Financing of Export payment collection totaling EUR 5, 3 mil for the period 2008-2012.

- We are using factoring because we always want to have secured money for further production. As of 2006, we are having successful cooperation with the Agency. They responded to every our request fast, tried to solve it and help us compared to banks which do not want to deal with us, a production company which hires 100 people but they observe us through certain criteria and if we do not fulfill tem, they refuse to help us - Verica Putnicacnin from Termomont says for –Kapija.

Factoring is a financial instrument via which a factor ( a bank of a factoring company) finances a company based on future (due) payments generated from sale of goods or services at domestic or foreign market. Basically, it represents a purchase of someone`s payments, i.e. funding through factoring is a specific way of acquiring assets via sale of due payments.

Factoring is primarily for SMEs which traditionally have more difficult access to banking loans due to low creditworthiness or inadequate funds for loan guarantee. Factoring is important for exporters because, apart from advanced payment, it enables takeover of payment collection risk and management and monitoring of debts which increases competitiveness and exporting g potential of these companies at the international market.

Domestic factoring means that a seller and a buyer of goods or service are in the same country, i.e. that turnover of goods or services is carried out in the territory of Serbia and in the case of international factoring, a seller and a buyer are in different countries.

In 2011, turnover increased to EUR U 926 mil from last year’s EUR 950 mil, 10 % of which was international factoring.

Price of factoring

Factoring price comprises two components: a fee expressed in percentage of the nominal value of an invoice and which is deducted upon advance payment and factoring interest rate calculated based on agreed rate to the funding amount as of the moment of assets usage until execution of payment from a buyer.

The Agency for Insurance and Funding of Export, they say that an interest rate is some 7% on the average and that the price depends on the planned scope of turnover which will be given to a factor for payment, payment deadline, risk of a country to which export is carried out, a risk which depends on whether a factor takes over a payment collection risk.

Termomont suggests that expenses i.e. interest rate could be lower than it is today.

Who deals with factoring?

As we have been told in the Agency for Insurance and Financing of Export, 5-7 companies aske for the service per month. The only condiction the Agency sets is that the company exports at least EUR 300.000 per year.

- Now we have 60 active contracts. We are focused to international factoring, i.e. exporters abd we support domestic as well, By September this year we generated profit of EUR 53 mil - Tanja Kursar, Factoring Manager at the Agency says for eKapija.

Kursar says that it happens that large companies forbid smaller companies transfer of debts but that according to the Law on factoring a ban on debts transfer cannot refer to factoring.

Ivan Latas, a sales rep of Societe Generale bank factoring, points out that factoring do far has not been considered widely so far as an alternative to existing financial mechanism. Latas says that Societe Generale bank last year generated some EUR 60 mil in domestic factoring turnover.

- We have not earlier done international factoring and we are starting the service as of November.

The Agency for Business Registries should announce a list of all organizations which carry out factoring services with detailed information so that companies would know who to address and which company has essential capital.

Factoring – a chance for entrepreneurs

One of the conclusions of the round table held October 8, organized by USAID Project for better business terms and Union of Employers of Serbia was that factoring is a good funding source.

- Companies headed by women rarely loan money from banks compared to those headed by men because often they do not have real estate to mortgage. However, according to the preliminary results of the survey conducted among 1000 companies showed that women, more than in 2012, turned to banks as funding sources and to families and friends less than before -Ana Jolovic, leader of the team for development of the financial markets of the USAID project for better business terms.

Entrepreneurs who attended the round table had the opportunity to find out more about functioning of factoring and the Law on factoring as well as how to get an advice on how to use factoring as a support to their companies.

Suzana Obradovic