FACTORING MARKET IN

POLAND

NAME – PANKAJ RATHI

ROLL NO. – 869 (V SEMESTER)

Factoring - definition and mechanism

Factoring is a financial instrument that combines working capital financing, credit risk protection, accounts receivable

bookkeeping and collection services. It is offered under an agreement signed between the factor and a seller. Under the

agreement, the factor purchases the seller's accounts receivable.

The Convention on International Factoring formulated in Ottawa provides a precise definition of factoring. A factoring

contract is a contract signed between a supplier (seller) and another party (factor) under which:

1. The supplier assigns to the factor claims arising from a merchandise sale contract concluded between the supplier and

his customers (debtors).

2. A factor must perform at least two of the following functions:

financing for suppliers including loans and advance payments;

keeping accounts related to the claims;

collection of claims;

protection against debtor s payment default.

3. The debtors must be notified of the assignment of the claim

In "advance" factoring, the business owner sells his receivables in the form of invoice to

the factor, who makes an advance of 70-85% of the purchase price of the receivable

amount. The factor collects the full amount from the customer in due course and pays the

balance amount due to the business owner after deducting his commission and other

charges. In "maturity" factoring, the factor makes no immediate advance on the purchased

accounts; but sees to it that the customer pays the invoiced amount within the stipulated

time i.e. on maturity. However, if the customer fails to make payment within the stipulated

time e.g. 30 days, the factor makes payment to the client and proceeds to collect the

payment from the customer

Factoring companies (so called factors) finance the undue invoices in both domestic and export transactions.

The companies can receive up to 90% value of their account receivable (invoices) and the remaining 10% upon

receiving payment from the debtor (supplier).

Factoring is especially recommended for the following companies:

that sell goods and services with a deferred payment,

with flexible external financing needs,

with a spread of reliable buyers,

with a strategy of increasing its turnover eg. by offering to suppliers longer payment terms.

A company financing their current activity with factoring receives the financing immediately upon the sale of

goods / services so it can well manage their finances as well as reduce the risk of deficiencies in payment and

reduce the risk of exchange rates in export.

IMPORTANCE OF FACTORING

Factoring is an important source of external financing and an alternative to a bank credit. There are few reasons why

factoring is becoming more and more popular. In order to get a credit a client must meet a number of criteria and show

"creditworthiness", which means that the value of the underlying assets must always exceed the amount of the credit.

Establishing the collaterals at a required value often generates additional costs. In factoring the need for collaterals is not

significant and there are no costs related. Factoring companies evaluate the clients' debtors and their risk policy is based on

debtors portfolio, contracts between the client and its debtors and payment conditions and delays.

IMPORTANCE OF FACTORING

Factoring does not increase the debt of the company it allows an immediate access to company's assets, usually the

company would have to wait 60, 90, 120 days i.e. as the payment terms on the invoices. Factoring does not involve

the rate payments by the company and the percentage rate charged is charged on the bases of the financing used.

Credit is one of the products and services available for the client of the bank. For a factoring company, factoring is

often the only product it offers and its expertise so that the client can fully benefit all the advantages of the factoring:

financing, verification of the debtors, managing the account of the supplier, collection of the debts. It will also

improve the cashflow the export activities and may cover against insolvency of the debtors.

IMPORTANCE OF FACTORINGCredit effects:

Requires "creditworthiness" of the client and a collateral,

Creates indebtedness of the client,

It is for the creditor to pay even if these are the debtors that do not pay their rates.

Factoring effects:

The only required collaterals are accounts receivable of the client,

Does not create indebtedness of the client (the costs include factor's fee and interest rates),

Financing is paid by the clients' debtors.

It is to be emphasized that factoring as a financial tool should be as an option and compared to other financial

instruments.

Factoring – Over the world

There are two international factoring networks of leading factoring companies: Factors Chain

International (FCI) that counts 235 factors in 63 countries and International Factors Group

(IFG) that counts 60 companies in 46 countries.

Europe accounts for over 70% of the world factoring volume (the leading countries are the UK

and Italy), followed by the Americas (US and Brazil) and Asia (Japan and Taiwan) 13% of the

world factoring volume.

Every year there is a significant growth of the factoring volume in Central Europe, especially

in Poland and Czech Republic and Romania.

FACTORING IN POLANDFactoring companies in Poland play an important role for the Polish economy and the development of the

factoring industry proves the potential of factoring as external source of financing. Factoring accounted

for 4% in Polish GDP in 2009. Factoring service helps with the cash flow management the companies

from the following industry sectors: automotive, food and agro alimentary, steel, construction and

commerce.

There are two types of companies that offer factoring in Poland i.e. banks and companies that

specialize in receivables management (financing, management, monitoring and collection). Banks

usually offer the financing, the factoring companies offer such services as: keeping accounts, collection

of claims, protection against debtor's payment default.

The main types of factoring available in Poland are domestic factoring (recourse, non-recourse) and

export factoring (recourse, non-recourse) as well as import guarantees.

STATISTICS

YEAR TOTAL TURNOVER IN

MIO PLN

SHARE OF FACTORING

PRODUCT IN TOTAL

TURNOVER

NUMBER

OF

CLIENTS

NUMBER

OF

DEBTORS

NUMBER OF

INVOICES

FINANCED

POLISH

FACTORIN

G

ASSOCIATI

ON

TOTAL

MARKET IN

POLAND

DOM

ESTIC

FACT

ORIN

G

EXPOR

T

FACT

ORIN

G

IMPORT

FACTORIN

G

2009 30 032 51 352 75% 23% 2% 1 702 47 805 1 977 700

2010 55 913 64 195 76% 23% 1% 3 210 76 943 3 187 089

2011 67 105 79 366 79% 20% 1% 4 106 81 653 3 655 715

2012 81 806 100 200 79% 19% 2% 4 706 89 204 3 761 550

Legal aspects of factoring

In 1988 the Convention on International Factoring was formulated in Ottawa, it provides a

precise definition of factoring in international trade. In most countries, including Poland there

are no legal acts or laws related to factoring.

FACTORING IN POLAND – GROWTH,

OPPORTUNITES & BARRIERS

Time for factoring

Factoring is a popular financial instrument. The number of companies that consume the

product (ca 5.6 thousand entities) evidence the growth of Polish market. It increased by about

14% in 2009. Within the last two years, the companies associated in PFA achieved an

impressive 60% increase in turnover. Only in the first half of 2010 the turnover of factoring

companies of PFA, exceeded PLN 19 bn. This is an increase of 34.6% year on year.

Industry’s opportunities

After the financial crisis the economy growth was certainty for 2010. Companies are looking for

capital to feed the development activities after the crisis, so now is the best time for factoring

growth.

The potential for factoring growth in Poland is expressed by the fact, that only 2% of the 300

thousand companies utilize the factoring services. Factoring in Poland, however, has a low

penetration rate. In the developed financial markets, that ratio reaches 6 -7% of GDP. In Poland the

rate is significantly lower, what means, that it still has tens of years of growth of the industry.

Barriers of growth

A fundamental barrier of growth is the low level of awareness among entrepreneurs and the

consequent low demand for factoring services.

"Factoring is a complex product. Difficulty in understanding the core business of it make that

businesses are less likely to use it, "- noted Roberto Weckop of Eurofactor, Germany.

Only the collective efforts of the entire industry can bring real effects measured by the further

development of the market. Therefore the key to the success is in educational activities that shall

be dedicated not only to the existing and prospect Clients but also to the entire financial services’

industry and factoring companies.

A major challenge for factors is also the threat of recurrence of the economic slowdown and the

financial crisis

Prospective products

Factoring is defined in the world as approximately 200 different types of financing services

dedicated to the companies that sell their receivables. In fact, it is difficult to determine

whether recourse factoring or non recourse factoring shall be more popular. On the one hand,

non recourse factoring is much more attractive for Polish entrepreneurs. On the other hand, the

basic need of entrepreneurs is funding, this is why the recourse factoring is still welcome.

The industry worldwide evidences a dynamic development of the invoice discounting within

which the client receives only the funding, and is largely responsible for the management of

receivables. That financial solution has generated 32% of the world factoring turnover in 2009

gaining particular popularity in Western Europe. In Poland, the service is not recorded as

factoring yet, so in the long run it can gain a significant position in the market. In the context

of factoring services, there is an opportunity of the tremendous growth of popularity of asset

based lending. However this service is a rare one in Poland.

The popularity of export factoring shall increase in Poland. Exporters' need to finance their

receivables by factoring mainly because of the increasing volume of international trade. As the

Polish market integrates with EU markets, this service will find some thousands of clients.

The wide array of different types of factoring services is available on the Polish market now.

The panelists presented different types of factoring: the restructuring, the reverse, the

municipality ones and others. "The range of factoring products in Poland is wide, so the

factors can fully satisfy customers' needs" - noted Andrzej Żbikowski, Vice-Chairman of the

PFA’s Executive Committee.

………………………………………….Thank you……………………………………………