PROJECT TITLE:
ANALYSIS OF USE OF FACTORING
DG ENTERPRISE – ACCESS TO FINANCE UNIT
ETD/00/503408
FINAL REPORT
GREATER LONDON ENTERPRISE LTD
CONTENTS
1.Background to the Study
1
1.1 Introduction
1
1.2 Access to Finance by SMEs
1
1.3 The Role of Factoring
4
2.Executive Summary & Recommendations
7
3.Study Objectives and Methodology
11
3.1 Primary Study Objectives
11
3.2 Study Methodology and Approach
11
3.2.1 Desk Research
12
3.2.2 Supply Side Survey - European Factoring Industry
12
3.2.3 Demand Side Survey – European SME Associations
15
4.How Relevant is Factoring for SMEs?
5
PAGE NO.
17
4.1 What is Factoring?
17
4.2 Definition of Factoring Process and Products
18
4.2.1 Recourse and Non-Recourse Factoring
19
4.2.2 Invoice Discounting
20
4.2.3 Other Factoring Related Products
21
4.3 What is the Incidence of Factoring by SMEs?
22
HOW ACCESSIBLE IS FACTORING TO SMES? 29
5.1 How do Factors Assess Risk?
29
5.2 Security and Collateral
33
5.3 Legal Framework for Factoring
33
5.4 Factoring for all Business Sectors?
35
5.5 Factoring for all Types of Business?
40
5.5.1 Size of Business by Turnover
40
5.5.2 Legal Form of Business
41
5.5.3 Trading History
42
5.6 Costs of Factoring Finance
42
5.7 Cost of Factoring services
44
5.8 Image and Product Understanding
46
6.Structure of European Factoring Markets
49
6.1 Factoring Products and Relative Importance
49
6.2 Number of Factoring Companies
49
6.3 Market Concentration
50
6.4 Structure of Ownership of Factoring Companies
52
6.5 Government Influence on Factoring
54
7.Size of European Factoring Markets
55
7.1 Volume of Aggregated Factoring Turnover
55
7.2 Factoring Relative to GDP
56
7.3 Factoring Relative to Cashflow Financing
58
7.4 Volume of Factoring Turnover Disaggregated by Product
58
7.5 Volume of Factored Turnover – Domestic / International
59
7.6 Volume of Domestic Factoring by Product
63
7.7 Volume of International Factoring by Product
63
8.Summary Conclusions
67
Annex 1:
Supply Survey Respondent Organisations’ Contacts
Annex 2:
Supply Side Sample Survey Questionnaire
Annex 3:
Demand Side Sample Survey Questionnaire
Annex 4:
Demand Survey Respondent Organisations’ Contacts
Annex 5:
Economic and Factoring Statistics
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
1.
BACKGROUND TO THE STUDY
1.1
INTRODUCTION
Greater London Enterprise (GLE) was commissioned in January 2002 by the
European Commission (EC) Directorate General for Enterprise (DG
Enterprise) to conduct a detailed analysis of the use of factoring within and
across EU Member States.
The EC has a defined long term strategy addressing different aspects of the
leading issues around access to finance by enterprises, with a special focus
related to access to finance by SMEs.
This study, being undertaken on behalf of the Access to Finance Unit of DG
Enterprise, forms an integral component of the EC’s strategy to identify and
stimulate access to finance for all European SMEs – and more specifically, and
possibly most importantly, access to, ‘appropriate’, finance.
This study specifically investigates the incidence and appropriateness of the role
of factoring in meeting European enterprise finance needs.
1.2
ACCESS TO FINANCE BY SMEs
Whether due to supply or demand constraints, on average one in five SMEs in
Europe considers access to finance as a barrier to growth. Clearly, stimulating
a competitive financing environment for all companies is a key element in
promoting an entrepreneurial economy and strengthening economic growth.
SMEs can finance their activities from internal or external sources. As shown
in Table 1.1, there are considerable differences between Member States in
respect of the financial structure of SMEs between the share of own ‘internal’
capital versus ‘external’ financing. In some Member States (for example, in
Germany and Austria) small businesses rely much less on own capital and more
on readily available bank loans. In others (France, Belgium, Portugal) own
capital financing is more prevalent.
What is common though is that in most cases SMEs require external finance for
business expansion — be it loans, other types of debt, or equity.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Table 1.1: Share of Own Capital in Total Balance Sheet by Enterprise Size
Size by turnover
Austria
Belgium
France
Germany
Italy
Portugal
Spain
Less than € 7m
13 %
40 %
34 %
14 %
26 %
31 %
42 %
Between € 7m and €
40m
27 %
38 %
35 %
22 %
25 %
40 %
43 %
€ 40m and more
31 %
39 %
35 %
31 %
28 %
51 %
37 %
All sizes
28 %
39 %
35 %
30 %
27 %
42 %
38 %
Source: The European Observatory for SMEs, Sixth Report
Figure 1.1 below, generated from the Exco Grant & Thornton survey of
European SMEs 2001, depicts the relative use by SMEs of various forms of
external financing. It clearly shows the prevalence of overdrafts, bank loans
and leasing as financing alternatives for SMEs.
Figure 1.1: Use of External Financing by SMEs
60%
50%
46%
50%
39%
40%
30%
20%
11%
9%
9%
10%
0%
External Investors
Subventions
Factoring
Leasing
Source: Exco Grant & Thornton survey of SMEs 2001
-2-
Bank Loans
Overdrafts
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
As banks usually ask for collateral against their lending, (reflecting their
conservative approach to risk), the availability of collateral is an essential factor
in SMEs securing access to bank financing (overdrafts and loans). Banks will
generally require either real estate or other tangible assets as collateral, or a
guarantee from a person or an institution. Typically, SMEs use what collateral
they have to secure start up business financing, and therefore may lack
additional assets to secure against raising additional debt finance for short term
and long term expansion.
Overall, some 46 % of SMEs indicate that they use bank credit. Research
evidence1 exists showing that in countries where overdraft use is high, recourse
to bank loans tends to be low (Italy, Greece, Denmark, United Kingdom).
Further, a causal relationship is apparent in that, where access to bank credit is
more difficult, payment periods and payment delays tend to be the longest
(Italy, Greece, Portugal, Spain).
Late payment of sales invoices is a key issue exacerbating the need for shortterm finance by SMEs. The average payment period for sales invoices across
Member States is shown in Table 1.2 below.
Table 1.2: Average Payment Period for Sales Invoices: Days (%)
Country
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Netherlands
Portugal
Spain
Sweden
UK
EU Average
Av. Days
31
52
30
26
58
31
83
56
78
47
43
70
71
36
41
50
7-14
20
2
11
18
7
21
4
4
4
9
6
2
4
4
11
11
15-29
30
16
41
51
8
34
4
7
2
15
22
3
5
23
18
18
30-44
27
22
37
22
17
26
11
23
9
27
29
20
15
56
27
22
45-59
8
21
4
5
13
8
6
23
8
9
18
14
12
9
19
11
60-74
3
24
1
1
26
4
9
21
21
14
16
21
17
4
12
13
Grant Thornton European Business Survey, 2002
1
See Commission Staff Working Paper, Enterprises’ Access to Finance, CEC 2001.
-3-
75-89
4
7
1
1
14
2
16
9
18
7
3
14
18
1
4
8
>89
2
5
1
1
10
2
46
10
35
6
3
26
28
0
2
13
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
As shown above, payment terms vary considerably in Europe, although overall
they have been reduced by 20% over the last decade to an average of 50 days.
Variability is high, from 26 days in Finland and 31 days in Germany, up to 78
days in Italy and 83 days in Greece.
Supplier credits are an important source of meeting the short term financing
needs for SMEs, and between 20% and 50% of outstanding ‘loan’ finance can
consist of supplier credits. The use of supplier credit depends on the length of
the payment period, on the availability of ‘own’ funds, and on access to bank
loans. For a considerable number of SMEs suppliers’ credits are more
important source of working capital than bank loans.
Supplier credit is generally conceived to be more expensive than bank loans and
overdrafts, as often clients receive a ‘discount’ in the case of immediate
payment. However, as is often the case, companies with liquidity constraints
have no choice except to opt for the more expensive solution, and absorb the
negative impact on the business that these high costs bring.
In this vein, the Exco Grant & Thornton European Business Survey 2002,
noted that, on average across the EU, 15% of businesses reported lack of
working capital as a constraint to short term expansion plans, and of finance
that was available, 24% of businesses reported that the cost of this finance was
prohibitive to short term expansion.
1.3
THE ROLE OF FACTORING
Factoring companies often claim that they are an ideal financing option for
small, young and fast-growing firms. As shown in the previous sub-section,
many SMEs confront problems when attempting to gain access to external
funding because of the difficulties faced by financial institutions in producing
consistently reliable risk-assessment processes. Particular problems for firms
may be experienced in the management of working capital. In an attempt to
alleviate such problems many firms (See Figure 1.1) have sought alternative
forms of finance by pledging an important element in their working capital, that
of accounts receivable, i.e. factoring.
A second dynamic often quoted by factoring companies in favour of their
particular relevance to SMEs is that related to their ability to address skills
deficiencies and/or high opportunity costs faced by SMEs in pursuing effective
credit management functions.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Despite impressive development in the factoring market, little academic work
has actually been undertaken to establish the role of the factoring industry in
small business development and the profile of businesses constituting its client
base. This is as true for Europe, as it is for the USA and elsewhere. Similarly,
national and international industry statistics and data for factoring are also
relatively scarce, with only one reasonably comprehensive source, certainly for
European countries, being the World Factoring Yearbook. This study has
collaborated with the World Factoring Yearbook – who advised on the design
of the study survey questionnaires to ensure that data collected under this study
built on, rather than replicated, the existing levels of knowledge and data on the
European factoring industry.
Whilst data might be relatively scarce, factoring is clearly an important, and
growing, source of business finance. For example, factoring and invoice
discounting is estimated to contribute around 6% in additional finance to UK
SMEs, compared with 6.5% provided through venture capital (British Chamber
of Commerce, 1994; Cambridge Small Business Research Centre, 1995; Bank
of England 1997, 1998, 1999). Furthermore, the UK Factors and Discounters
Association (FDA) indicated that currently factoring and invoice discounting
now accounts for more than 35% of the total cash flow financing requirements
of UK SMEs – the balance comprising bank loans, bank overdrafts, retained
profits and internal financing sources, leasing, external investment – and this
figure is expected to continue rising.
The importance, volume and structure of factoring differs markedly between
EU Member States. Figure 1.2 below shows aggregate factoring volumes by
selected Member States for 2001. Compare the UK and Italy, both with a long
established history in factoring, demonstrating high volumes and many players,
with, for example, Greece, where the first factoring company established only
in 1995, whilst growing rapidly, is doing so from an obviously very small base.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Figure 1.2 – Aggregate Volumes of Factoring by Member States (Million Euro)
G
re
ec
e
D
en
m
ar
k
nd
la
Ire
n
Sw
ed
en
ai
Sp
ce
G
er
m
an
y
an
Fr
Ita
ly
U
ni
te
d
K
in
gd
om
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
Source: World Factoring Yearbook 2001, BCR Publishing
Additional to the variances in market structure and size, the specifics of the
various factoring products also differ markedly across Member States. This is
because the roots of factoring products are based on and around specific and
unique national laws permitting the effective assignment of receivables.
Therefore, this study is intended to provide a strong baseline investigation in
the European factoring market. It builds on previous effort, presenting
additional comparative data on the relative size, structure, market development,
volumes, and profile of factoring across Europe. Specifically, it considers the
supposition that factoring is highly ‘appropriate’ for SMEs.
Against all the above mentioned analysis we consider the possible role of policy
interventions to correct, address, and/or stimulate access to factoring for SMEs
in Europe.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
2.
EXECUTIVE SUMMARY & RECOMMENDATIONS
1. The purpose of this paper is to investigate the incidence and role that
factoring plays in the financing of SMEs across Europe.
2. Whilst marked differences occur between Member States, SMEs typically
rely on external financing for more than 50% of their balance sheet value.
Traditionally, this external finance has predominantly comprised bank loans
and overdrafts. However, the incidence of asset based finance –
including factoring – has been increasing rapidly over the past decade.
3. Factoring is not one homogenous product. Rather, it is a composite
product offering a mix of finance, credit insurance and financial
management services. The main three recognisable forms of factoring are
classified as Recourse, Non-Recourse and Invoice Discounting. All three
products are offered in each Member State, however, the volume of market
mix by these three products is not at all consistent across Member States.
4. Being a composite product, factoring is unique and does not have any
exact substitutes for the whole offering. Of course, it does have
substitutes for its constituent components – bank loans and overdrafts for
the financial component – financial services companies or direct
employment for the credit management component – and explicit
commercial credit insurance for the credit protection component.
5. Factoring charges separately for the financial and service components. On
average, financial charges, calculated on an interest basis, typically
range between 2-3% above bank base rates.
6. The service fee differs depending on the level and breadth of service
offered, but average fees range between 0.5-2%. The service function
typically offsets two areas of business costs – employing a credit controller
on the one hand, and in many cases qualifying for a suppliers discount for
prompt payment. Overall, factoring is seen as highly competitive.
7. Factoring is a business to business service. It is not suitable for all
businesses as not all debts can be factored.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
8. With the exception of merger based contraction in three markets, the
number of factoring companies across Europe has increased by 55%
over the past 10 years. However, the level of market concentration is
typically high with only 1 or 2 firms on average accounting for 50% of
market share by volume applying for each Member State.
9. Factoring companies typically fall within one of three categories – banks,
large industrial companies, or independent. However, the majority of
factoring companies in Europe are owned by banks – and in several
markets, more recently banks are buying deeper into the factoring sector.
10. The total volume of factoring across Europe has grown by a massive
57% over 1998-2000 (albeit from a relatively low base), with increases
demonstrated in each Member State. In 2000, the total aggregate factoring
volume for Member States stood at a not insignificant Euro 370,968
million.
11. Whilst factoring is used for financing international trade sales, the vast
majority of business is concerned with domestic sales.
12. Factoring is specifically targeted and suitable for smaller businesses.
On average, 50% of the total number of European factoring company
clients have turnovers of less than Euro 2mn, 81% of less than Euro 5mn,
and 91% of less than Euro 15mn. This view is shared by European SME
Associations where all of those who reported under this study indicated
without exception that factoring was a ‘useful and useable source of
finance’.
13. Factoring affords businesses access to finance based on their growth in
sales, rather than bank loans and overdrafts which are normally available
against an accumulation of tangible assets. As a growing small business,
investment in sales is often more a priority than investment in fixed assets.
14. Factoring appears to function in fairly competitive markets, with little
reported impact on growth being attributable to legal, fiscal or regulatory
issues.
15. Further, with banks taking factoring business more seriously, they are
increasingly ‘selling’ factoring products to their established clients in
lieu of increasing overdraft limits. This can only increase the incidence
of factoring across Europe.
16. Whilst it is not within the scope of this study to analyse the impact of Basel
II on factoring, it is arguable that the impact of reforms to bank
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
legislation as proposed under Basle II may lead to a squeeze on
traditional bank lending to SMEs. With factoring companies measuring
client risk on a completely different basis to banks, any contraction in bank
lending to SMEs may well represent a realisable opportunity for factoring
companies to take up this slack.
17. With no reported undue distortionary influences, continued growth in the
European factoring market will continue according to prevailing
economic and market forces.
18. The impressive growth in factoring business over the past decade is
characterised as ‘supply driven’ with more intensive market competition,
leading to more informed and aggressive marketing to client SMEs.
19. However, on the demand side there appears several areas requiring
facilitated development if the market is to operate to its full potential.
Specific demand side building measures would include:
q
Raising Awareness of Professional SME Advisers
Engaging with respective government SME departments to agree initiatives
for raising professional awareness of factoring as a valid financing option by
government SME agencies, and professional business advisers engaged by
these agencies and other government service delivery organisations.
q
Raising Awareness by SMEs
Engaging with banks, professional advisory organisations, and SME
representative organisations to agree a series of information and education
awareness raising initiatives targeting companies understanding of factoring
as a financing option.
q
Professional Engagement of Finance Providers
Engaging with banks to seek their views as to raising awareness of their
staff, and seeking to develop more effective referral mechanisms to
factoring companies / subsidiaries. Whilst nothing was reported under this
study, it would still be useful to engage with banks and NBFI’s to
determine if public sector support is required to further develop the market
– financial (guarantees) or non-financial.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
3.
STUDY OBJECTIVES AND METHODOLOGY
3.1
PRIMARY STUDY OBJECTIVES
The stated objectives of this study are recalled as:
3.2
q
an initial analysis of the use of factoring in all the countries of the EU (only
short term economic risk should be considered; neither long term nor
political risk should be evaluated).
q
Examine the conditions of access to the relevant instrument within the EU
for SMEs, identifying costs and obstacles to access.
q
Establish a link between the conditions of access and the potential level of
use for the development and export capacity of SMEs.
q
Draft a final report with recommendations for possible policy actions to be
taken in order to stimulate the use of factoring in the EU.
STUDY METHODOLOGY AND APPROACH
The primary methodology used for this study is confirmed as:
q
Desk Research – confirmation, collection and review of headline
publications documenting activities of the European factoring industry.
q
Supply Side Survey of the European Factoring Industry – given the
paucity of published data on European factoring markets, this study
determined to conduct a primary survey of European factoring markets.
This survey is the primary source of market data presented in this study.
q
Demand Side Survey of European SME Representative Associations –
to balance the supply side survey and give insight into the level of
understanding of factoring, and how it applies to SMEs, a survey
questionnaire was put to a large sample of European SME representative
organisations.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
3.2.1 DESK RESEARCH
Desk research concentrated on effective liaison with the following key
organisations:
q
World Factoring Yearbook
q
Factors Chain International
q
Europafactor
q
EURADA
Specifically, with each organisation the study team,
q
Introduced the study objectives;
q
Confirmed respective organisational support to the study;
q
Confirmed and collected key documentation sources on factoring data and
market information (which are extremely limited);
q
Confirmed certain possible key contacts to serve as ‘national factoring
associations’ in several countries.
q
Reviewed existing published factoring data and information.
It was clear that sources of data on European Factoring markets are extremely
limited. In fact, only the World Factoring Yearbook presents any common
analysis and data. Therefore, the importance of this study’s primary survey
research was critical to generate added value information on market supply and
demand factors.
3.2.2 SUPPLY
INDUSTRY
SIDE
SURVEY
-
EUROPEAN
FACTORING
Relating to the definition of a survey methodology, and implementation of this
survey, the supply side survey aimed at primary data collection from ‘national
factoring associations’. Specifically the study,
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
q
Generated a sample frame of possible contacts prepared to serve as
‘national factoring associations’ in each EU member state;
q
Contacted, introduced the study, and confirmed support from
representatives prepared to serve as ‘national factoring associations’ in each
EU member state;
q
Based on information gaps, and requirements of the study, drafted outline
survey questionnaire targeting data collection from ‘national factoring
associations’;
q
Discussion with leading factoring industry figures on the structure,
wording, and depth of the survey questionnaire;
q
Incorporation of comments received through above activity, and revision of
the survey questionnaire – the questionnaires being tailored to be individual
country specific.
Details of the lead factoring industry organisations in each Member State that
were approached under the supply side survey are given in Annex 1. An
example supply side survey questionnaire is presented in Annex 2.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Compiling and confirming the sample frame was particularly fraught for a
number of reasons, as detailed below.
q
Not all EU member states have formal national factoring associations, and
fewer still have what might be termed ‘proactively meaningful’ associations;
q
Of those member states boasting a defined national factoring association,
few of these were staffed with full time secretariats;
q
The majority of defined national factoring associations hold limited
published quantitative national factoring data, and rather engage in perhaps
what might be termed general advocacy, co-ordination and general
representation functions.
In those countries where no formal association exists (such as the Netherlands,
Ireland, Denmark and Greece) the approach was to make direct contact with
senior management of leading factoring companies in these countries,
requesting their support in serving in the role as ‘pseudo’ national factoring
association.
The supply side survey targeted all EU Member States, with the exception of
Luxembourg, where given its highly immature factoring industry it was agreed
with the EC that this Member State would not be a focus of the study and is
therefore excluded from all subsequent analysis and commentary.
Survey responses were achieved for all other Member States, with the
following two exceptions:
q
Netherlands – no formal association exists. A number of management
contacts within commercial factoring companies were approached but no
support was confirmed.
q
Portugal – a formal association does exist, and repeated requests for
assistance were made of its Principal. However, there appears a strong
reluctance to support the study, and as of now no ‘new’ data for Portugal
has been compiled.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
3.2.3 DEMAND
SIDE
SURVEY
REPRESENTATIVE ASSOCIATIONS
–
EUROPEAN
SME
As shown in the previous section, this study dedicated considerable resource to
investigating and generating supply side statistics, analysis and views from the
European factoring industry. As valuable as this supply side view is to the
study, a demand side view is also important to ensure a balanced picture of
market dynamics.
Therefore, this study determined to approach a wide range of European SME
representative associations and national chambers of commerce.
A short demand side survey questionnaire, reproduced in Annex 3, was drafted.
Its aim was to confirm or otherwise some of the basic presumptions of the
factoring industry that factoring is appropriate for smaller businesses.
Details of those organisations that were approached under this survey are given
in Annex 4.
Demand side survey responses were achieved from eight organisations,
indicating a reasonable 23% response rate; sufficient to present a demand side
balance to the study analysis.
The data generated through the supply and demand side survey’s are the
primary source for analysis for this report as presented in subsequent sections.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
4.
HOW RELEVANT IS FACTORING FOR SMES?
The following two questions are key to the focus of this study:
q
How Relevant is Factoring to SMEs; and
q
How Accessible is Factoring to SMEs
This chapter tackles issues related to the first question of relevance. The
question of accessibility is tackled in Chapter 5.
As shown in Chapter 1, to greater or lessor degrees, all European SMEs rely
heavily on access to external finance to run, and particularly to expand, their
businesses. There are a range of external financing products available to
SME’s including bank loans and overdrafts, leasing, and venture capital.
Factoring is an alternative route by which a business can increase its cashflow
to fund expansions. However, factoring is the only method of external
financing that reacts instantaneously to both increasing and decreasing sales
alike.
Further, factoring offers more than simply finance. Through matching finance
with professional credit management services, and in some cases credit
protection, factoring stands out as unique from these other competing sources
of external finance.
4.1
WHAT IS FACTORING?
Factoring is a financial facility offering improved cashflow for client businesses.
However, factoring is not one homogenous product. It is wise, then, to define
what we mean by factoring. Perhaps this can be best described by defining
what is a factor?
“A factor is a ‘person’ that purchases a debt for a discount owed to another,
in order to make a profit by collecting it.”
So, factoring is the sale and purchase of debts? This is true, however, it is the
relationship between a factor and its client with specific regard to the
embedded credit management services offered by the factor for collecting on
these debts that really defines factoring.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
So, all factoring companies pay their clients for their invoices as they are
issued. However, factoring companies also offer a range of professional
services that might typically include:
q
Collecting payments from their customers
q
Pursuing late payers
q
Providing advice to clients on credit management
q
Protecting the client against bad debts
This means that the benefits of factoring do not simply include an immediate
cash payment. If the factor provides credit management services too, then
there is also the prospect of an improvement in the speed at which debts are
collected, giving a further positive impact on cashflow, and reduced interest
charges. The headline costs and benefits of factoring are discussed in detail in
Chapter 5.
As shown below, the scope of these embedded credit management services
define the various factoring products typically available in the marketplace.
4.2
DEFINITION OF FACTORING PROCESS AND PRODUCTS
In structuring this study it was necessary to distinguish between and to define
the various common types of factoring product. These are defined as:
q
Recourse Factoring;
q
Non-Recourse Factoring; and
q
Invoice Discounting
The factoring process associated with of the above products is presented
diagrammatically and explained below.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
4.2.1 RECOURSE AND NON-RECOURSE FACTORING
Recourse factoring involves a factor taking responsibility for their clients’ debt
collections but retains the right to seek full recourse from the client for any bad
debts. The client may buy credit insurance separately but no cover is provided
by the factor.
Non-recourse factoring offers the client full credit management service cover
on approved debts against the eventuality of the factor being unable to secure
full payment of factored invoices.
However, the process for recourse and non- recourse factoring is the same, as
highlighted in Figure 4.1.
Figure 4.1
Process of Recourse and Non-Recourse Factoring
Step 2
Debt
assigned
in
with Factoring Agreement
FACTOR
Step 2
Prepayment
e.g.
Step 1
Copy of Invoice
Step 3
Collection Activity incl.
statements, letters,
telephone
Step 3
Payment on
Due Date
Step 4
Balance on
Collection/Maturity
Step 1
CLIENT
Goods + Invoice
CUSTOMER
To clarify the various steps in the process shown above:
Step 1
The Client ships goods with original invoice to the Customer. This invoice
would normally instruct the Customer to pay the Factor (giving full payment
details). At the same time, the Client sends a copy of the original invoice to the
Factor.
- 19 -
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Step 2
On receipt of the copy invoice by the Factor the associated debt is assigned to
the Factor in accordance with the Factoring Agreement. Simultaneously, the
Factor makes available a credit line (normally of upto 80% of the invoice value)
against which the Client can choose to immediately draw down a pre-payment
(factors usually provide finance within one day of receiving the Client invoice).
Step 3
The Customer pays the full invoice balance directly to the Factor on the due
date. In case of overdue payment against an ‘unchallenged’ invoice, the Factor
initiates the process of credit collection from the Customer (details of typical
services provided, and costs, are presented in Chapter 5). In the case of
continued non-payment, it is normally the Factor who proceeds with legal
action and foreclosure against the Customer. In case of Recourse Factoring,
the Factor has recourse to the Client for any outstanding uncollected debt.
Conversely, under non-recourse factoring the Factor assumes any loss (in some
cases such loss may be protected through credit insurance held by the factor).
Step 4
On payment by the Customer (or in case of late payment on an agreed date) of
the full invoice amount, the Factor credits the balance (less the prepayment and
fees) to the Client account.
The Factoring Agreement with the Client is, in almost all cases, on a Whole
Turnover Basis (rather than individual invoices), and as such, the factoring
process is perpetual. This is an important point and means that factoring
involves the Client selling its entire ‘sales ledger’ to the Factor.
4.2.2 INVOICE DISCOUNTING
In the case of recourse and non-recourse factoring, the involvement of the
Factor is normally ‘disclosed’ to the Customer. However, most invoice
discounting agreements are managed on a ‘confidential’ basis, where the
Customer is unaware of the involvement of the Factor. The invoice
discounting process is shown in Figure 4.2 below.
- 20 -
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
THE
FACTOR
Process of Invoice Discounting
the
om unt
r
f
co
ds
cee ust ac r
o
r
p
tr
e
the ated ’s ord
s
n
y
r
i
t pa om nte
lien to a n discou
c
he r in
e
6. T tome d to th
s
l
u
c
he
TRUST
ACCOUNT
hetasrlfcoT7.
a
grm
nteclioh20%
otupesarltofche.T3
80
ealuvoicnheft%
2. The client sends copy invoices
(or sales ledger details) to the factor
Figure 4.2
1. The client sends their invoice to the customer
THE
CLIENT
4. The client chases the customer directly
THE
CUSTOMER
5. The client receives payment directly from the customer
The process of invoice discounting follows almost exactly that of factoring as
referred to in the previous section. However, as a ‘confidential’ service, under
invoice discounting the Client chases payment from the Customer directly
where this payment is made to a nominated Trust Account held under control
by the Factor.
As demonstrated, invoice discounting is much more about access to finance,
rather than factoring which is more about access to finance with professional
services. This is reflected in the typical size of clients that are suitable for each
service – with invoice discounting more appropriate to medium and larger
clients with resources enough to run a professional credit management
function, and factoring, conversely, more appropriate to smaller firms.
4.2.3 OTHER FACTORING RELATED PRODUCTS
The definitions given in 4.2.1 and 4.2.2 were used as base definitions in
carrying out this study research thus ensuring a common understanding by
study survey recipients across the EU. On the whole they were understood
without question. However, two alternative, but related and similar products
were also mentioned as being used some Member States:
- 21 -
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
q
q
Discounted Bills of Exchange – A bill of exchange is an unconditional
order in writing addressed by one person (the supplier) to another (the
buyer). It is signed by the person giving it (the supplier) requiring the
person to whom it is addressed (the buyer) to pay on demand (or perhaps at
a fixed or determinable future time) a sum of money to a specified person.
Once signed by both parties the bill is classified as having been ‘accepted’.
Accepted bills may then be sold to another party for a discount so that they
can collect it for a profit. This is exactly the same process as factoring,
except that bills of exchange are used as the ‘legal asset’ rather than the
more common use of an ‘invoice’. Bill discounting is the common form of
factoring in France where it estimated the some 80% of all trade is on bills
of exchange (traites). In France the factoring industry offer a service
including raising the bills and subsequently discounting the ‘accepted’ bill.
Confirming - This is a type of finance where a financial body confirm
orders placed by buyer to the seller – i.e. funding the purchase ledger rather
than the sales ledger. The financial body guarantees payment to the seller
whilst offering credit to the buyer. The system was originally used to
provide comfort to exporters. It was further developed in the United
Kingdom in the 1960’s by factoring companies to provide another service
to their clients to enable them to expand. It was usually provided on the
occasion when a factoring client received a large order it could not fund the
factor provided funding and recovers it funds from the resultant factored
debt. This system of helping clients was reduced when banks bought into
factoring companies but it is still operated by some of the smaller
independent factors in the UK and is offered as a service in Spain.
Neither Bills of Exchange nor Confirming are substitutes for factoring. In the
case of the former, it is simply factoring using ‘bills’ rather than ‘invoices’ as
‘assets’. In the case of the latter, Confirming is used for the financing
purchases, rather than sales.
4.3
WHAT IS THE INCIDENCE OF FACTORING BY SMES?
It is argued that factoring is a highly appropriate source of working capital
finance for smaller businesses. The following rationale in support of this
supposition is generally quoted:
q
The cost of funds are competitive against alternative, typically bank
overdraft, product charges;
- 22 -
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
q
The availability of funds through factors is higher to smaller ‘growing’
businesses than traditional sources (i.e. bank overdrafts) because factors
consider the sales invoice as a secure asset, whereas banks typically look
for fixed assets as security;
q
Clients know and can plan for the actual value of charges made by factors,
whereas, bank overdraft charges can be variable;
q
Factors are able to process and pay against invoices considerably more
quickly than the time taken to renegotiate any overdraft extension; and
q
The credit management services offered by factors often provide an
economic solution to smaller businesses who either do not have the relevant
skills internally, or the opportunity cost of undertaking these functions are
prohibitive.
Conversely to some of the above rationale, factoring is generally not perceived
to be of value to larger businesses for the following reasons:
q
Above a certain size, businesses may be motivated and able to pay for the
requisite credit management skills; and
q
Above a certain size, businesses may well be able to source comparatively
cheaper sources of finance, through perhaps a stronger negotiation position
with their bankers, or having more control of managing trade credits, or
perhaps their increased ability to raise capital through external sources
(including increasingly the use of corporate derivatives).
In the supply side survey we asked factoring industry respondents to provide
details of their client profile, through banding their clients by turnover. The
results achieved are shown over:
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Table 4.1: Factoring Clients by Size of Client Turnover (Euro)
Annual Client Turnover (Euro)
0 - 500,000
Clients
Austria
Belgium
Denmark
Finland
France
Ireland
UK
100
200
-
11,600
500,001 - 2,000,000
% Total
Clients
Clients
20%
200
85%
10%
400
5%
50-75%
20%
40%
6,380
% Total
Clients
40%
10%
20%
15%
22%
2,000,001 5,000,001 5,000,000
15,000,000
Clients % Total
Clients % Total
Clients
Clients
150
30%
50
10%
3%
1%
600
30%
600
30%
22%
23%
22-45%
70%
7,830
27%
2,030
7%
Source: GLE Study Survey Questionnaire 2002
- 24 -
>15,000,000
Clients
% Total
Clients
0%
1%
200
10%
35%
3-5%
10%
1,160
4%
Total
Clients
500
2000
21,600
29,000
% Total
Clients
100%
100%
100%
100%
100%
100%
100%
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
A headline summary of Table 4.1 is shown in Table 4.1a.
Table 4.1a
Summary of Factoring Clients by Size of Client Turnover
Client Turnover Less than 15mn Euro
Austria
Belgium
Denmark
Finland
France
Ireland
UK
Average
Client with turnover to 2mn
60%
95%
30%
20%
63%
20%
62%
50%
Client with turnover to 5mn
90%
98%
60%
42%
95%
90%
89%
81%
Client with turnover to 15mn
100%
99%
90%
65%
95%
90%
96%
91%
GLE Study Survey Questionnaire 2002
- 25 -
Client Turnover More than
15mn Euro
Clients with turnover >15mn
0%
1%
10%
35%
5%
10%
4%
9%
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
There are a number of observations to make from Tables 4.1 and 4.1a.
Perhaps the most important is that, reasons aside, an average of 50% of factor
clients have annual turnovers of less than Euro 2mn. This increases to 81% of
factor clients with annual turnovers of less than Euro 5mn, and 91% of factor
clients with annual turnovers of less than Euro 15mn. On average, only 9% of
factor clients have turnovers greater than Euro 15mn – reduced to only 4% if
Finland, showing a disproportionately high number of clients, was removed.
So, certainly in terms of performance, factoring is certainly catering for smaller
businesses typically with annual turnovers of less than Euro 5mn.
Four survey respondents indicated total numbers of actual factor clients by
turnover bandwidths. This makes particularly interesting reading, and offers
some rudimentary insight into the future potential for expansion of factoring
services. We take the UK as an example:
q
There are a reported 29,000 business clients using factoring services;
q
The UK statistical service reports a total business stock of 1.664mn
registered businesses in 2001, of which it is reasonable to estimate 90% of
these are SMEs, which extrapolates as around 1.5mn;
q
Extrapolating further from this, only 2% of UK registered SMEs currently
use factoring services;
q
The EU Access to Finance 2001 report predicts that 50% of UK SMEs use
overdrafts, which translates as 750,000 businesses;
q
Therefore, if factoring is seen as an alternative to overdrafts, and whilst not
all firms will use, or be appropriate to using factoring services, there would
seem a large potential gap to fill between the current 29,000 factoring
clients, and the estimated 750,000 SMEs using overdraft facilities.
When also considering that Austria only boasts a total of 500 factoring clients,
and Denmark 2000 clients, it would seem reasonable to assume that there
exists a large potential for growth in factoring business across the EU.
The above reflections are based on a supply side industry view. What about
the demand side – small businesses themselves? In our demand side survey of
European SME Representative Associations the overwhelming opinion was
that factoring is a useful and useable source of finance for all SMEs.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
A total of 62.5% of demand side survey respondents believe that factoring
represents a cheaper and/or at least similar cost option than alternative sources
of finance (indicated as bank loans and overdrafts).
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
However, the same respondents confirmed that in most instances whilst SMEs
may be aware of factoring, it is hardly ever used. This raises the interesting
question that – if both the supply and demand side forces both recognise that
factoring is relevant to SMEs, and that the costs of factoring are comparative
to alternative sources of finance, why then is there a relatively low take up of
factoring by SMEs? This question is explored below where the issues of access
to factoring are considered.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
5
HOW ACCESSIBLE IS FACTORING TO SMES?
In Chapter 4 issues related the relevance and incidence of factoring to SMEs
were discussed. In this Chapter the focus is on issues related to the
‘accessibility’ of factoring by SMEs.
5.1
HOW DO FACTORS ASSESS RISK?
ICT innovations enabled banks to improve and change their risk assessment
procedures dramatically. The development of a so-called ‘rating culture’ will
lead to more risk-sensitive pricing, focusing on enterprises’ individual risk. The
process of introducing the regulatory banking framework, the so-called Basel II
process, put the spotlight on these changes and accelerated the transition.
A factor approach to client risk assessment is markedly different to that of bank
lending. Banks ‘lend’ money to clients, and whilst they may well take a
debenture over the company with respect to their loan, they do not ‘own’ the
debt in the sense of being able to ‘control’ the debt. Therefore, banks are
primarily concerned about the ability of the client to make productive use of the
debt to ensure a sufficient enough return to service the debt. In mitigation of
repayment default by the client, banks usually seek to take collateral.
Factors on the other hand do not ‘lend’ money to clients. Factors take
assignment over a client invoices – or in effect ‘purchase a clients debts for a
discount’. As explained in the previous chapter, under this arrangement,
factors make a pre-payment to the client of an agreed percentage of the value
of the assigned invoice. The remaining balance (less the pre-payment and fees)
of the assigned invoice is paid to the client when the invoice is paid to the
factor by the customer (or at an agreed specified future date). Unlike banks,
under this arrangement, the factor effectively ‘owns’ the invoiced debt and has
full legal recourse to pursue this invoiced debt in the case of non-payment by
the customer.
Therefore, as a first point, factors typically have no need to, so do not, seek
collateral, additional to the assignment of the invoice, as security from their
clients. As an exception, some factors do seek security against fraudulent
practice by the client. This issue of security and collateral is discussed in
Section 5.2 below.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
So, what are factors interested in ensuring when assessing client risk?
Primarily, factors assess prospective clients with respect to:
q
The ‘factorability’ of the clients product / business;
q
The quality, strength and performance of the sales ledger;
q
The profile and credit worthiness of the clients main debtors;
q
The quality and integrity of sales invoices; and
q
The quality, clarity and consistency of client administration and
documentation.
In making judgements on the above considerations, it is normal for a factor,
giving consideration of a facility to a prospective client, to carry out a survey of
the business. Sometimes this survey is known as an initial audit, or an initial
investigation, or perhaps due diligence.
All survey reports would involve a visit to the clients’ premises, normally for
up to one day and survey reports normally are completed within two working
days for presentation to senior management of the factor. The senior
management team then makes a qualitative judgement on whether or not to
take on the prospect as a client.
Whilst every factor will have their own internal survey report format and
considerations, a typical survey audit would address issues as outlined in Table
5.1.
Should a factor choose to offer a facility to a prospective client, as mentioned
above, it is not usual for the factor to seek security, additional to the factoring
agreement, from the client with regard to protecting the factor against business
failure. However, it is more common for the factor to seek personal guarantees
from the directors of the client business to protect the factor against any
fraudulent practice on the part of the client.
- 30 -
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Table 5.1: Checklist of Factor Risk Assessment Procedures
AREA OF INVESTIGATION
KEY INDICATORS (INCLUSIVE)
The Constitutional Set Up of the Client – presentation of the
‘headline’ information on incorporation of the client
q
q
q
Sales Ledger Analysis – building a picture of the size and
quality of the sales ledger, including the quality of associated
documentation.
q
q
q
q
q
q
q
q
q
q
q
Product Analysis – confirming the extent to which the product
is ‘sell and forget’ confirming the factors ability to legally
enforce the assigned debt.
q
q
Business Details (name, address, trading style etc)
List of Directors and shareholders
Details of Auditors, Bankers and Charge Holders
Check on Debtor Statements (are they reconciled; agree with ageing)
Profile of debtor business
Analysis of debtor profile (normally for top 10-20 debtors)
Quality of sales ledger documentation
Ledger analysis – relative size of debtors, payment terms, bad debts
Average invoice value
Average credit note value
Credit notes as percentage of turnover
Average remittance advice value
Average debtor balance
Average debt turn
Nature of the business;
Assessment of warranties, guarantees, returnable containers, schedule delivery, long term
contracts, retrospective discounts, constructive delivery, product insurance, free issue material
- 31 -
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Invoicing and Sales Order Process – confirming the trail of
documentation is appropriate and clear from enquiry-orderinvoice. Also, investigating the reasons behind disputed
invoices.
q
q
q
q
Financial Analysis and Statements– a general picture of the
financial structure of the client business and confirmation of
solvency.
q
q
q
q
q
Suppliers and Creditors – confirmation of payment terms and
performance of the client with its creditors.
q
q
q
q
Invoicing process and documentation quality - orders in writing, proof of delivery,
acknowledgements, self billing, payment terms, layout clarity of invoice information
Sales order process and documentation quality –system of handling sales enquiries through to
invoicing
Analysis of disputed invoices
Analysis of remittance advice’s
Analysis of turnover
Analysis of financial facilities and conditions thereof
Current balance
Cash book balance
Value of unprocessed cheques
Analysis of contracts with major suppliers and supplier payments
Confirmation of any legal proceedings taken or threatened
Confirmation of any judgement debts
Payment terms
- 32 -
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
5.2
SECURITY AND COLLATERAL
Building from the previous section is the question of the impact of the factor
approach to security and collateral on accessibility of factoring by SMEs.
Banks usually ask for collateral security for their lending, which reflects their
conservative approach to risk. The availability of collateral is an essential
condition in securing access to loans for healthy businesses. Banks will
generally require either real estate or other tangible assets as collateral or a
guarantee from a person or an institution.
Innovation in overcoming this conservative approach has seen impressive
growth of leasing services and general asset based financing whereby the bank
can more effectively service the SME through financing other than traditional
loans or overdraft facilities.
Similarly for factoring, which is a form of asset based financing, here the factor
‘owns’ the debt legally, rather than takes a charge on the debt to be redeemed
only in a receivership situation – i.e. each invoice should be a legally
enforceable debt in its own right. This issue is important with respect to the
issue of fixed verses floating charges. Specifically, the difference between bank
lending and factoring – where in the latter case, instead of the company
providing security in the form of a charge over book debts, it ‘assigns’ those
debts to the factor.
Thus banks may prefer to offer working capital through factoring, rather than
through traditional overdrafts secured by a fixed or floating charge on the book
debts. This realisation is possibly reflected in the observations made later in
this report, noting that banks are increasingly entering the factoring market.
So, unlike banks, factors are not concerned with taking security additional to
the book debts.
5.3
LEGAL FRAMEWORK FOR FACTORING
The availability of factoring, and its cost, are directly related to the risk the
factor bears. Accordingly the legal framework with regard to the transfer of
ownership of a debt and the rights of a creditor in cases of default are most
important considerations.
- 33 -
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
It is beyond the scope of this study to undertake a full cost-benefit analysis of
the legal framework for each Member State. However, there are certain issues
related to the prevailing legal framework governing the assignation of
receivables and enforcement of collection thereof, which could affect the
accessibility of SMEs in certain countries to factoring services.
Firstly, there is the issue of the mechanics of legally transferring the ownership
of a debt - how long does it take, what is involved, and what does it cost?. The
laws under which ownership of debt can be transferred are specific to each
individual country circumstance and no common theme across countries is
identifiable.
However, the physical process for assigning debts differs in each country. For
example, in most countries, the equitable assignment of debts is automatically
covered in the factoring agreement between the factor and the client. Whereas,
in the Netherlands, the factor must take a documented list of all invoices to be
factored that day to a court of law to be stamped by an officer of the court.
This clearly has a differential impact on relative efficiency of the process.
Further there is a question concerning the strength of the factor’s legal position
in cases of default? Again, with laws and processes specific to each Member
State it is not possible to define a common theme across all countries.
However, we can make an observation with regard to the relative penalties for
debt defaulters across Europe. For example, in the UK it is not uncommon for
cheques to be returned unpaid with little or no impact on the credit rating for
the offending party. Whereas in France, if a debtor negates on payment of a
Bill it is reported to the Bank of France who act also as a credit rating body.
Therefore the act of a single default in France could well affect, as a matter of
course, the future credit rating of the debtor.
Whilst the legal process is different in each Member State – and there will
therefore be cost and risk differentials between Member States – on balance, it
is not thought that the impact of this will significantly affect access to factoring
by SMEs in one Member State over another.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
5.4
FACTORING FOR ALL BUSINESS SECTORS?
Factoring is a business-to-business service. In no EU country is factoring
available for consumer debts i.e. the explicit debt transaction between a
consumer and a retailer. However, some new product innovations are
addressing this potential market, particularly in the case of large retailers taking
considerable credit card purchases, and perhaps medical insurance. However,
whilst these innovations may service at the consumer retail level, they remain
business to business, and not business to consumer transactions i.e. the debt
being factored is the debt owed by the credit card / insurance company (the
debtor) to the ‘retailer’.
Not all debts can be factored. The first question any factor will consider before
agreeing to take on an item on a company’s sales ledger is: “is there a debt?”
Or, rather, “is there a legally enforceable debt?” As such, factors prefer
businesses that provide goods or services with no extended tie in to anything
else such as maintenance contracts, extended warranties or retentions.
Similarly factors are not looking for businesses whose activities are likely to
involve the possibility of ‘lumpy’ or ‘stage’ payments.
The types of industries that tend not to be suitable for factoring would include
construction related businesses, telecommunications, computer services or
similar. This is as much a legal issue as it is a general problem relating to these
industries. Typically, invoices issued are often related to stage payments. As
such, these invoices may not be fully enforceable until the whole contract is
satisfactorily completed. The debts may be paid but may also be subject to
recourse if at a later date the contractor defaults. This relates to the question
stated above, “is there a legally enforceable debt?”
Businesses with simple ‘sell and forget products’ suit factors best.
Good examples of industries that tend to be suitable for factoring would
include temporary recruitment, logistics /transport/ courier services,
manufacturing, engineering, printing and design, advertising or similar. In
many of these industries, businesses like temporary staff agencies and office
cleaners often do not have or need substantial assets. This can often mean
bank facilities are not available. Whereas factors will purchase the agency’s
invoices because these are substantiated by time sheets or satisfaction notes
signed by the customer. These types of companies consider factoring as highly
appropriate as the factors provide funds that allow them to expand relatively
unfettered.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
The supply side survey of the European factoring industry confirmed the typical
sectors where factoring businesses is executed, and those sectors that were
typically excluded.
Unsurprisingly, respondents explicitly mentioned Construction and Software as
typical sectors excluded from factoring. However, it is noted that elements
within these sectors may well be suitable for factoring. For example, the supply
of raw materials (say, concrete and bricks) to a construction project would
probably be factorable, whereas those activities related to the actual
construction itself would probably not be factorable. Similarly, within the
software sector, the supply of off-the shelf equipment (say, Windows software)
would probably be factorable, but those activities related to the development of
bespoke software solutions probably would not.
Again, the general rule relates to ‘factorability’ and as such no whole ‘sector’ is
fundamentally excluded from access to factoring.
In the same survey, we asked respondents to give indications of breakdown
distributions of use of factoring services by business sector. Each country
classifies ‘sectors’ using varying terminology, rather than standard SIC type
classifications, but nonetheless, the results are useful, and are therefore
presented in Table 5.2 below. In Table 5.2 we have aggregated results to be
explicit about the ‘top’ four sectors in each country, classifying the remainder
as ‘others’.
The results show a heavy bias in most countries to the following sectors:
q
Manufacturing – possibly the most important;
q
Transport and Distribution (including Trade) – next most important; and
q
Services the next most important still (but in line with structural economic
shifts in many EU member states away from ‘primary’ and ‘secondary’
sectors towards the ‘tertiary’ sector, the latter services sector is rapidly
growing in importance to factors).
Other key sectors reported include Electrical / Electronics, Chemicals, Food
and Textiles. Of course, sectors supported will typically follow patterns
according to possibly:
q
The sectoral composition of any individual economy; and
- 36 -
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
q
The sectoral focus of growth of ‘industrial’ owned factors servicing within
their respective supply chains.
Of course, as factoring competition grows in each country, one would expect
the sectoral distribution of factoring services across countries to more reflect
respective economic activity bias.
- 37 -
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Table 5.2
Country
Austria
Electrical
Sector 1
35%
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Netherlands
Portugal
Spain
Sweden
UK
Electronics
Textiles
Manufacturing
n/a
Manufacturing
Food
Distribution
Transport
n/a
n/a
Manufacturing
Manufacturing
Manufacturing
14%
15%
46%
n/a
47%
20%
40%
19%
n/a
n/a
34%
50%
40%
Distribution of Factoring Services by Business Sector
Sector 2
Wood,
Glass
&
Chemicals
Textiles
ICT
Trade
n/a
Trade
Electrical
Manufacturing
Trade
n/a
n/a
Construction
Transport
Services
16%
Sector 3
Rendering Services
13%
Textiles
13%
15%
28%
n/a
40%
10%
30%
19%
n/a
n/a
19%
30%
35%
Building Materials
Electronics
Building
n/a
Services
Chemicals
Services
Telecom Services
n/a
n/a
Transport
Services
Distribution
13%
10%
23%
n/a
13%
7%
30%
6%
n/a
n/a
13%
20%
25%
B2B Services
Furniture
Transport
n/a
Paper
Electrical
n/a
n/a
Trade
-
Source: GLE Study Survey Questionnaire 2002
- 39 -
Sector 4
9%
Others
27%
13%
10%
1%
n/a
7%
4%
n/a
n/a
11%
-
47%
50%
2%
n/a
0%
56%
0%
52%
n/a
n/a
23%
0%
0%
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
5.5
FACTORING FOR ALL TYPES OF BUSINESS?
In discussing issues of access to factoring by SMEs, the supply side survey
investigated the impact of the following variables related to the ‘type of
business’:
q
Size of Business by Employees
q
Size of Business by Turnover
q
Legal Form of Business
q
Trading History
Each of the above variables is discussed below.
5.5.1 SIZE OF BUSINESS BY TURNOVER
The survey did not approach the issue of whether the number of employees in
any business affects the decision of a factor to take on that business as a client.
However, reference is made to preliminary conclusions reached by Khaled
Soufani, in his report entitled ‘The Role of Factoring in Financing UK SMEs: a
supply side analysis’ – published in Journal of Small Business and Enterprise
Development, Volume 8, Number 1, 2001.
Soufani reports that 78% of factors interviewed considered size of business by
employment to be irrelevant to their decision making process. However, they
did indicate that about 70% of their client businesses employed less than 15
people. This observation is consistent with the results on Incidence of
Factoring by SMEs, presented in the Chapter 4 of this report.
The size of a company’s sales ledger was considered a possible issue affecting
access to factoring by SMEs – specifically, how far down does factoring really
reach?
This issue was considered from two perspectives:
q
Any minimum turnover below which factors will not engage; and
q
A typical factor client profile differentiated by size of turnover.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
The supply side survey attempted to identify exclusions that are commonly
applied in each EU country with regard to company size, sales ledger turnover,
customer-base and business sector.
Survey figures reported differ markedly by respondent country making
generalisations for the European factoring industry impossible. Generally,
turnovers greater than Euro 0.5 million seems to be looked for – but not
necessarily so. Certainly, as competition increases, one would expect factoring
to reach down to businesses with levels requested in the UK – as low as Euro
100,000. The results received are shown in Table 5.3:
Table 5.3
Austria
Belgium
Finland
Germany
Greece
Ireland
Italy
UK
Typical Exclusions by Size of Turnover
Not less than Euro 500,000
Not less than Euro 25,000
Not less than Euro 500,000
Preferably more than Euro 2.5 million
Not less than Euro 300,000
Not less than Euro 500,000
No ‘typical’ exclusions
Not less than Euro 100,000
Source: GLE Study Survey Questionnaire 2002
It is noted though that there will always, generally, be someone willing to take
on the debts of a company, whatever their turnover. However, it is
acknowledged that the costs charged for small sales ledgers may well be
prohibitively high for very small businesses.
It is also common practice for factors to shy away from businesses with too
high a proportion of their debts with a single company. The risk exposure is
often considered too great.
5.5.2 LEGAL FORM OF BUSINESS
The supply side survey requested respondents to comment on general rules
applied that might result in the exclusion of certain categories of client.
With regard to the legal form of business, typically, factors reported that they
would prefer clients who were registered as limited liability companies.
However, Sole Traders and Partnerships were reported as acceptable forms of
business for clients. The only exception reported was for ‘private persons’
which of course reinforces that factoring is a business-to-business service.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
5.5.3 TRADING HISTORY
No typical exclusions were noted with respect to trading history. However,
factors would ideally be looking for clients with an established trading history,
typically more than 3 years. However, in line with earlier report comments,
clients in the services sector particularly are becoming increasingly more
important to factors, and many of these businesses are ‘young’ but with strong
customer bases, demonstrating good growth potential and therefore worthy of
consideration by factors.
5.6
COSTS OF FACTORING FINANCE
The calculation of the costs of factoring is dependent on the following
considerations:
q
The factoring product;
q
The costs of credit; and
q
The costs of associated credit management services.
We concentrate in this section of the first two considerations shown above.
The costs of services are considered in the following section.
Table 5.4 shows the costs of capital reported by the factoring industry for each
country, differentiated by product type. We do not have typical charges for
alternative (overdraft) products, but did ask each respondent to confirm the
relative competitiveness of credit advanced through factoring to alternative
products – the options given were:
q
Very Competitive - (factoring is cheaper than alternative)
q
Competitive – (factoring is about the same as alternative)
q
Not Competitive (factoring is more expensive than alternative)
In all cases factoring was reported as being Competitive. The exception was
the UK which reported that factoring was Very Competitive.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
The question of price competitiveness of factoring finance was raised in our
demand side survey of SME Representative Associations. From this survey,
62.5% of respondents felt that, in their opinion, the costs of factoring were
comparable, and/or cheaper, than alternative sources of finance (being quoted
as bank loans and bank overdrafts). 25% of respondents reported that, in their
opinion, factoring is too expensive for SMEs (although respondents clarified
these responses as being more targeted at very small businesses).
There was little reported difference between the interest charges for money
advanced through either recourse or non-recourse factoring products, with
typical quoted mid-range values being 2-3% above bank base rates.
However, it is noted that credit charges for invoice discounting are lower than
for recourse and non-recourse, with typical mid-range values reported as 0.51.5%. It is reasonable to suggest that this is so because, typically, clients using
invoice discounting services tend to be relatively larger businesses, turning over
larger volumes and therefore attract a slightly lower fee, and are in a better
position to negotiate.
Naturally there is an issue here over the competitiveness of bank-owned factors
versus independent / private factors. Clearly, bank-owned factors should be
able to ‘borrow’ money ‘internally’ at base, whereas independent / private
factors may well be relying on bank credit lines attracting their own base rate
plus interest charges – thereby there is a case for suggesting that the costs of
borrowing differ between bank owned and non-bank owned factors, thereby, in
principle, affecting their relative competitiveness.
Conversely, whilst the above may well be true, as mentioned earlier in this
report, bank-owned factors typically adopt a more standardised and risk-averse
approach than do independent / private factors, who whilst they may be slightly
more expensive, would still have a market at the fringes.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Table 5.4
Country
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Netherlands
Portugal
Spain
Sweden
UK
Costs of Factoring Credit Advances
Recourse
Non-recourse
Invoice discounting
Eb 1.0% - 3.5%
Eb 1.0% - 5.0%
Eb 2.0% - 5.0%
Eb 0.5% - 3.0%
Eb 2.0% - 3.0%
Deal Basis
Eb 1.5% - 2.5%
Bb 2.0% - 4.0%
n/a
n/a
n/a
Eb 1.0% - 3.0%
Bb 1.0% - 3.0%
Bb 2.0% - 4.0%
Eb 1.0% -3.5%
Eb 1.0% - 5.0%
Eb 3.0% - 6.0%
Eb 0.5% - 3.0%
Eb 2.0% - 3.0%
Deal Basis
Eb 1.5% - 2.5%
n/a
n/a
n/a
n/a
EB 1.0% - 3.0%
n/a
Bb 2.0% - 3.0%
Eb 1.0% - 3.5%
Eb 0.85% - 2.5%
Eb 2.0% - 5.0%
Eb 0.5% - 2.5%
Eb 0.5% - 1.5%
n/a
Eb 1.5% - 2.5%
n/a
n/a
n/a
n/a
n/a
n/a
Bb 0.5% - 2.0%
Source: GLE Study Survey Questionnaire 2002
Key - Eb = EuroLibor; Bb –National Bank Base Rate
5.7
COST OF FACTORING SERVICES
All factoring companies pay their client businesses for their invoices as they
are received. As mentioned previously, they may also offer one or a
combination of credit management services, comprising such as:
q
Collect payments from their customers
q
Pursue late payers
q
Provide advice to clients on credit management
q
Protect the client against bad debts
The way factors charge for services differs by company – some charge on a
‘menu’ basis providing individually priced service options from which the client
can pick and choose – however, it is more common for factors to provide
common defined basic services and quote one encompassing standard fee.
- 44 -
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Table 5.5 shows typical service fee costs as percentages of factored invoice
value. Non-recourse fees tend to be the highest with typical mid-range charges
of 1-2%; recourse factoring the next costly with typical mid-range charges of
0.5-1%. Invoice discounting is the cheapest at 0.25-0.5% of invoice value
reflecting the relatively few services typically provided with this product.
In terms of qualifying these charges through a rudimentary commercial costbenefit consideration, we can consider three ‘benefit’ elements:
1. The cost of hiring a qualified credit controller is mitigated through using a
factor.
2. The possibility of qualifying for a supplier discount (perhaps as high as 5%
of gross invoice value) for prompt payment that can be made following the
factoring of the invoice.
3. The use of professional credit management services often results in an
improvement in the adherence of payment terms to the client – i.e. invoices
are paid more quickly. This means that the client is able to repay any prepayment more quickly, and therefore reduces ‘interest’ charges.
When the above ‘benefits’ are considered against the ‘costs’ of the factoring
service element, factoring is arguably a competitive proposition – particularly
for smaller businesses.
In Ireland, virtually all factoring is non-disclosed recourse, and therefore the
factor is really only providing credit without services. Therefore, they typically
charge a negotiated flat annual fee to clients, rather than on a percentage of
invoice basis.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Table 5.5
Country
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Netherlands
Portugal
Spain
Sweden
UK
Costs of Factoring Services
Recourse
Non-recourse
Invoice discounting
0.5% - 0.8%
0.1% - 0.5%
0.4% - 0.5%
0.12% - 1.35%
0.4% - 0.5%
0.4% - 1.5%
1.0%
Negotiated Fee
n/a
n/a
n/a
0.5% - 2.5%
0.2% - 0.3%
0.75% - 2.0%
1.0% - 1.4%
0.3% - 1.0%
0.5% - 0.7%
0.01% - 1.2%
0.6% - 0.8%
0.6% - 2.5%
1.0% - 1.5%
Negotiated Fee
n/a
n/a
n/a
0.5% - 2.5%
n/a
1.0% - 2.5%
0.20% - 0.60%
0.05% - 0.25%
0%
500 - 700 Euro per month
0.18% - 0.20%
< 1.0%
Negotiated Fee
n/a
n/a
n/a
n/a
n/a
0.25% - 0.75%
Source: GLE Study Survey Questionnaire 2002
5.8
IMAGE AND PRODUCT UNDERSTANDING
Image and lack of product understanding were most commonly reported under
both the demand and supply side surveys as key constraints to market
development and expansion. There appear three components to image and
understanding, which are:
q
Perception of Inferior Product – reported that factoring has a negative
image as it tends to be provided either by private companies, or specialised
banking subsidiaries, with the latter either not owned by, or marketed as,
the main business banks. Therefore, it is reported that advisers and
companies tend to view it as an ‘inferior’ and more risky product.
q
Lack of Product Understanding – this by advisers and companies alike.
In fact our demand side survey of European SME Representative
Associations, only 25% of respondents confirmed that factoring was well
known to them and that they have looked at it in detail. The majority,
75%, of respondents confirmed that they had only an ‘in principle’
knowledge of factoring. Further, it was reported in particular that not
enough advisers sufficiently understand the product to effectively
recommend it to their client companies. Therefore, companies not
understanding the full tenets of the product tend to focus on giving up their
sales ledger and the possible downside implications thereof.
- 46 -
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
q
Perception by Clients Customers – as reported by several countries,
factoring is often perceived to be finance of last resort – i.e. believing that
their suppliers only turn to factoring when their banks have capped their
credit facility, which would indicate that the company might be in trouble,
which could lead to seeking alternative suppliers. However, with banks
entering the factoring market, and increasingly selling through their branch
network, it is expected that this will improve the ‘respectability’ of using
factoring and overcome its current, often negative, perception.
As touched on above, many SMEs expressed a reluctance to consider giving up
control of their sales ledger to an external party. There are a number of
reasons why companies might think this way. Most common reasons relate to
the perception issues discussed above. Specifically, the perception of their
customers to them being in financial difficulty – but also, the perception that
factoring is more costly than alternative financing – and finally, issues
surrounding trusting the factor to forge and protect the relationship with the
customer.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
- 48 -
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
6.
STRUCTURE OF EUROPEAN FACTORING MARKETS
This section presents a series of analysis derived from the supply side study
survey, which aims to give a picture of the structure of European factoring
markets. It focuses on issues of market concentration, market entry and
ownership structures.
6.1
FACTORING PRODUCTS AND RELATIVE IMPORTANCE
Based on the given study definitions of factoring products (recourse, nonrecourse, and invoice discounting) each survey respondent was asked to
confirm which products are offered in their respective countries. Broadly, all
three products are offered consistently across all countries. Only in Spain,
where they offer a confirmation service, rather than invoice discounting (i.e.
purchase ledger rather than sales ledger financing), and in Germany where legal
impediments prevent any real take up of recourse through factoring or invoice
discounting are there deviations.
6.2
NUMBER OF FACTORING COMPANIES
The number of factoring companies operating now, compared to 5 and 10
years ago, in each member state is shown in Table 6.2.
Numbers in Austria, Finland, and Spain have remained about the same.
The UK demonstrates a relatively high number of new market entrants,
reportedly a combination of smaller independent factors, but also integration
into the market by mainstream financial institutions and branches of foreign
owned factors.
The first factoring company in Greece was established in 1995, whereas there
are now seven operating companies. Germany and France have also
demonstrated increasing numbers of new entrants.
In Italy, Belgium and Sweden the numbers of companies operating ‘now’ has
declined, reportedly for reasons of market concentration through mergers and
acquisitions within the industry.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
The ‘EU-Total’ figues presented in Table 6.2 indicate a relatively static picture
of the number of factoring companies operating now, as opposed to 5 and 10
years ago. However, excluding the merger activity in Italy, Belgium and
Sweden the picture becomes much more dynamic showing an increase of 55%,
from 89 to 138, in new factoring companies operating now than there were 10
years ago.
Table 6.2: Numbers and Growth of Factoring Companies
Country
Total Now
Total 5 Years Ago
Total 10 Years Ago
Austria
3
3
3
Belgium
5
9
7
Denmark
10
10
6
Finland
4
4
4
France
38
30
24
Germany
16
12
11
Greece
7
4
0
Ireland
6
6
3
Italy
45
65
80
Netherlands
n/a
n/a
n/a
Portugal
n/a
n/a
n/a
Spain
19
20
18
Sweden
9
12
15
United Kingdom
35
27
20
EU TOTAL
197
202
191
EU TOTAL Ex. Italy,
138
116
89
Sweden and Belgium
Source: GLE Study Survey Questionnaire 2002.
Note: The statistics are based on membership data only, noting that many other smaller factors are not
members. Nonetheless, members regularly account for at least 80% of the market (by business volume).
6.3
MARKET CONCENTRATION
In Table 6.3, we present a picture of market concentration within the factoring
industries in each member state. Across most member states the factoring
industries are highly concentrated with, typically, only 1 or 2 companies
accounting for 50% of total market share by volume. In all of the more
developed markets, there shows a relatively high number of smaller factors, for
example, in the UK 26 companies make up only 20% of the market; in Italy this
is 39 companies, and in France 32 companies.
The typical high market concentration may be explained by one or more of the
following factors:
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
q
The relative fledgling state of factoring sector development in many countries;
q
The internal economies of scale for factoring companies acting as barrier to new market
entry (e.g. high volume credit lines perhaps acting as a ‘natural’ barrier restricting new
market entry to smaller independent factors which may lack access to funds for
expansion); and
q
Other regulatory barriers restricting market entry in several countries, restricting market
entry to formally registered financial institutions – banks and non-bank financial
institutions.
Growing market competition will have an impact on the future development
and growth of the factoring sector across Europe. Specifically, we would
consider three main positive impacts emerging from competition, particularly
competition from private / independent factoring companies:
1.
Increased product innovation, through technology, offering better
quality, lower cost and more relevant services to client businesses. This
is happening to some degree in the UK through intranet client
applications.
2.
Improved accessibility and relevance to servicing smaller businesses
either through better internal referral systems within banks that
recognise the suitability and profitability of factoring subsidiaries, or
through the growth of smaller independent factors operating at the
fringes of the market, servicing those companies that bank-owned
factors do not (as related to in Soufani, 2000).
3.
Higher factoring volumes, points of access, understanding and
marketing of factoring products to all businesses – as firms compete for
market share, they will need to be more focused on business
development and marketing – thereby raising the awareness of factoring
by businesses, and by business advisers.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Table 6.3
Country
Market Concentration in the EU Factoring Markets
No. of Companies
Accounting for 50% of
Total Market Volume
Austria
1
Belgium
1
Denmark
2
Finland
2
France
2
Germany
4
Greece
1
Ireland
1
Italy
2
Netherlands
n/a
Portugal
n/a
Spain
2
Sweden
n/a
United Kingdom
4
Source: GLE Study Survey Questionnaire 2002.
6.4
No. of Companies
Accounting for 80% of
Total Market Volume
2
2
4
3
6
9
3
3
6
n/a
n/a
5
4
9
No. of Companies
Accounting for 100% of
Total Market Volume
3
5
10
4
38
16
7
6
45
n/a
n/a
19
9
35
STRUCTURE OF OWNERSHIP OF FACTORING COMPANIES
There are typically three main types of factors. The factor can be affiliated with
a:
q
Commercial bank – or non-banking subsidiaries;
q
Large industrial companies providing factoring in specialised markets; or
q
Independent
In every reported case under this study, the majority of factoring companies are
owned by banks and non-bank financial institutions. This is unsurprising given
the rationale demonstrated in section 6.3 above, commenting on regulatory
restrictions, and market economies of scale. Italy shows 45% of factoring
companies being privately owned, demonstrating their historically particular
reliance on large specialised industrial companies.
There are two themes emerging from ownership structure:
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
q
On the up-side, banks entering the market provide the necessary resources and skills to
advance and grow factoring services;
q
On the down-side, as demonstrated by Soufani, 2000, banks tend to offer a standardised
approach towards products and risk assessment, which results indicate that factoring tends
to be restricted to more established businesses, and businesses within certain sectors.
On balance, the general industry feeling is that factoring is an area where banks
will continue to engage, and indeed should be encouraged to engage.
Certainly, factoring offers a viable alternative overdraft / loan financing to bank
customers, thereby allowing banks to effectively service their clients in line with
their sales related growth, rather than fixed asset related growth. This is an
important distinction for smaller businesses, and is discussed in more detail in
Section 5.
Table 6.4
Country
Ownership Structure of Factoring Companies
Banks
Private
Public
Foreign
Subsidiary
Austria
100%
Belgium
80%
Denmark
60%
20%
10%
Finland
100%
France
X%
X%
Germany
50%
31%
19%
Greece
100%
Ireland
100%
Italy
10%
45%
45%
Netherlands
n/a
n/a
n/a
n/a
Portugal
n/a
n/a
n/a
n/a
Spain
90%
10%
Sweden
56%
33%
7%
United
26%
31%
17%
Kingdom
Source: GLE Study Survey Questionnaire 2002.
Note: ‘Banks’ may be either operational departments of banks, or bank owned operating subsidiaries.
- 53 -
20%
10%
X%
n/a
n/a
26%
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
6.5
GOVERNMENT INFLUENCE ON FACTORING
In determining the competitiveness of factoring relative to alternative forms of
financing, and any fiscal measures generally impacting at all on the factoring
industry, the study asked factoring associations to confirm if there are:
q
Any subsidies affecting factors or clients;
q
Any fiscal incentives affecting factors or clients;
q
Any taxes affecting factors or clients; and
q
Any other fiscal measures impacting on or affecting factoring services
Belgium reported a partial VAT recuperation by client businesses against costs
of factoring fees, and a similar partial drawback scheme was reported in
France. In Portugal, we understand that a 4% stamp duty is applied to the
value of invoices that are factored.
However, these were the only fiscal measures identified by any of the
respondents outside of common prevailing corporate taxation applied by
Member States.
Therefore it appears as though factoring operates on a level competitive
playing field to other alternative products – at least as far as government fiscal
measures are concerned.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
7.
SIZE OF EUROPEAN FACTORING MARKETS
In Chapter 6 we presented details of factoring market structure reported for
each EU Member State. Specifically, we considered issues of market
concentration, market entry and ownership. In this chapter we consider issues
related to the size of the factoring markets in Europe. Analysis is presented
according to the following measures:
q
Volume of Aggregated Factoring Turnover
q
Factoring as proportion of GDP
q
Factoring as proportion of Total Cash Flow financing
q
Turnover desegregated by product
q
Aggregated volume of domestic Vs international factoring turnover
q
Domestic turnover by product type
q
International turnover by product type
7.1
VOLUME OF AGGREGATED FACTORING TURNOVER
Table 7.1 presents data on aggregated factoring volumes for each EU Member
State over a three year period, and considers the respective rates of growth in
factoring volume over the period.
There are clearly enormous volume differences between member states, with,
for example, the UK and Italian markets (being volume of utilisation of
factoring) being around 80 times bigger than Greece, and considerably larger
than the markets in Austria, Ireland, Belgium, Finland and Denmark. France as
the third largest market is still only around 50% of market size in either UK or
Italy.
Later in this section we ‘benchmark’ these volumes against other economic
measures of GDP and Cash Flow Financing, to show the relative scale and
importance of factoring in each respective country.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Importantly, all countries demonstrate positive, and in many cases highly
positive, rates of growth in total factoring volumes over the period 1998-2000.
The mean average rate of growth measuring 57% over the period – albeit with
many increases building from relatively low bases. The two largest markets,
UK and Italy, demonstrate similar rates of growth of circa 46% over the
period.
It is noted that these gains were made in years of low interest rates, which
perhaps gives an indication of the particular competitive and unique position
factoring holds.
Table 7.1: Aggregate Factoring Volumes 1998-2000 (Euro Millions 2000 prices)
Country
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Netherlands
Portugal
Spain
Sweden
United Kingdom
EU TOTAL
2000
2,275
8,000
4,050
7,130
52,450
23,483
1,500
6,500
110,000
n/a
n/a
19,500
12,310
123,770
370,968
1999
2,007
7,630
3,360
5,630
53,100
19,984
850
6,160
88,000
n/a
n/a
12,530
7,550
103,200
310,001
1998
1,832
4,366
2,894
5,230
44,255
20,323
596
3,957
75,319
n/a
n/a
9,936
7,677
84,255
260,640
Rate of Growth 1998-2000
24.2%
83.2%
39.9%
36.3%
18.5%
15.5%
151.7%
64.3%
46.0%
n/a
n/a
96.3%
60.3%
46.9%
56.9%
Source: World Factoring Yearbook 2001, BCR Publishing
7.2
FACTORING RELATIVE TO GDP
In considering the relative importance of factoring within each economy, we
compared factoring volumes to GDP volumes. This is shown below.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Table 7.2
Country
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Netherlands
Portugal
Spain
Sweden
UK
AVERAGE
Factoring Relative to GDP by Member State
2000 Factoring
relative to GDP
1999 Factoring
relative to GDP
1998 Factoring
relative to GDP
Growth in Factoring
relative to GDP from
1998 to 2000
1.11%
3.22%
2.33%
5.43%
3.73%
1.16%
1.22%
6.28%
9.44%
3.96%
7.80%
3.20%
4.95%
7.98%
4.42%
1.02%
3.24%
2.06%
4.67%
3.93%
1.01%
0.72%
6.92%
7.94%
5.49%
6.88%
2.22%
3.32%
7.54%
4.07%
0.97%
1.95%
1.88%
4.54%
3.41%
1.06%
0.55%
5.12%
7.05%
5.03%
5.51%
1.89%
3.59%
6.63%
3.51%
14.36%
65.51%
23.99%
19.74%
9.47%
9.32%
123.20%
22.62%
34.03%
-21.25%
41.74%
69.39%
37.91%
20.44%
33.61%
Source: 1) Factoring data, World Factoring Yearbook 2001, given in current million
euro prices. 2) GDP data, Planistat, given in current million euro prices. See Annex 5
Unsurprisingly, factoring relative to GDP is higher in those countries where
factoring is a more established and deeper market. In the most developed
markets factoring relative to GDP in 2000 ranges from 9.44% in Italy, 7.98%
in the UK, to 7.80% in Portugal. Clearly these show that factoring is
significant.
Importantly, in all markets, other than The Netherlands, the rate of growth of
factoring relative to the rate of growth of GDP between 1998 and 2000, has
been significant, albeit in most cases starting from a low base. The mean
average rate of growth of factoring relative to GDP across all member states
over the period is 33.61%.
Whilst we do not have data regarding rate of growth in bank overdrafts or
loans, we can note that these impressive rates of growth in factoring did occur
at a time of historically low interest rates in Europe. It might therefore be
reasonable to suggest that factoring as a ‘product’ is valued by businesses for
more than simply its financial element – i.e. the accompanying service element
offered by factors.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
7.3 PERCEPTION OF FACTORING RELATIVE TO CASHFLOW
FINANCING
With the exception of the UK, published statistical data on factoring
relative to total cash flow financing was not openly available. Therefore, in
questioning national factoring associations, we requested that they attempt
to give a reasonable and qualified indication on their perceptions of
factoring relative to total cash flow financing (understood as short term
bank loans and bank overdrafts) – now – and in the medium term. Not all
countries felt able to respond to this question, but the results attained from
those who did are indicated in the following table.
Table 7.3: Perception of Factoring Relative to Total Cash Flow Financing
Country
Recourse
Non-recourse
factoring
factoring
2002
2007
2002
2007
Austria
n/a
n/a
n/a
n/a
Denmark
8.0% 12.5% 0.5% 0.5%
Finland
7.0% 7.0%
3.0% 6.0%
Greece
n/a
n/a
n/a
n/a
Ireland
n/a
n/a
n/a
n/a
Sweden
5.0% 10.0% UK
4.8% 3.0%
2.3% 2.0%
Source: GLE Study Survey Questionnaire 2002
Invoice
discounting
2002
2007
n/a
n/a
2.0%
2.0%
10.0% 12.0%
n/a
n/a
n/a
n/a
26.2% 35.0%
Total Factoring
2002
10.0%
10.5%
20.0%
5.0%
10.0%
5.0%
33.3%
2007
10.0%
15.0%
25.0%
5.0%
10.0%
10.0%
40.0%
Other Cash Flow
Financing
2002
2007
90.0%
90.0%
89.5%
85.0%
80.0%
75.0%
95.0%
95.0%
90.0%
90.0%
95.0%
90.0%
66.7%
60.0%
From the above table the conclusion can be drawn that only where there is
already a vibrant expanding factoring industry that can offer a full range of
services without restrictions does the industry expect to have any expansion
into the cash flow market usage.
7.4 VOLUME OF FACTORING TURNOVER DISAGGREGATED BY
PRODUCT
As shown in Table 7.4, the product mix has remained fairly constant over the
period. However, the relative volumes of factoring turnover by product differ
markedly by country. For example, in 2000, 79% of total factoring volume in
the UK was attributable to invoice discounting and only 14% to recourse
factoring; whereas in Italy, volumes are split relatively evenly between recourse
and non-recourse factoring.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
A likely answer to this relates to the development of factoring products in each
country, being specific to each country, for the simple reason that prevailing
laws and regulations regarding assignment of receivables in each country are
unique and specific. Therefore, whilst each product is defined as broadly the
same, the specific process, application and interpretation of each product will
have variances across each country.
7.5 VOLUME OF
INTERNATIONAL
FACTORED
TURNOVER
–
DOMESTIC
/
The following table shows total factoring turnover disaggregated by
domestic and international factoring business. Clearly, domestic factoring
business is by far the most important, however, in several countries,
international factoring is fairly significant, with Austria, Belgium and
Denmark showing attributing around 30% of total factoring to international
business. Whilst not having the statistics to draw a robust conclusion, it is
thought that, generally, those countries showing relatively high proportions
of international factoring are reflective of their respective levels of total
export sales of companies relative to domestic sales – i.e. these countries
have relatively small domestic markets and therefore companies are more
reliant on exports, than say the larger domestic markets of France, Italy and
the UK.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Table 7.4
Volume of Factoring Disaggregated by Product (1998-2000)
2000
Country
Recourse
NonInvoice
recourse
discounting
Austria
90%
7%
3%
Belgium
50%
20%
30%
Denmark
80%
1%
19%
Finland
45%
20%
35%
France
14%
56%
30%
Germany
10%
90%
Greece
50%
15%
35%
Ireland
95%
5%
Italy
45.3%
54.7%
n.d.%
Netherlands
n/a
n/a
n/a
Portugal
n/a
n/a
n/a
Spain
13%
50%
37%
Sweden
80%
10%
10%
UK
14%
7%
79%
Source: GLE Study Survey Questionnaire 2002
1999
Recourse
90%
50%
81%
45%
14%
10%
n/a
95%
49.9%
n/a
n/a
13%
85%
16%
Nonrecourse
7%
20%
1%
15%
56%
90%
n/a
5%
50.1%
n/a
n/a
49%
5%
7%
- 61 -
1998
Invoice
discounting
3%
30%
18%
40%
30%
n/a
n.d.%
n/a
n/a
38%
10%
77%
Recourse
90%
50%
84%
50%
14%
10%
n/a
95%
54.2%
n/a
n/a
14%
85%
17%
Nonrecourse
7%
20%
1%
5%
56%
90%
n/a
5%
45.8%
n/a
n/a
46%
5%
8%
Invoice
discounting
3%
30%
15%
45%
30%
n/a
n.d.%
n/a
n/a
40%
10%
75%
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Table 7.5
Country
Total
Volume of Factoring Turnover by Domestic / International (1999-2000)
2000
Domestic
Austria
2,275
1,585 (70%)
Belgium
8,000
5,500 (69%)
Denmark
4,050
2,700 (67%)
Finland
7,130
6,915 (97%)
France
52,450
48,250 (92%
Germany
23,483
18,660 (79%)
Greece
1,500
1,300 (87%)
Ireland
6,000
6,000 (100%)
Italy
110,000
105,000 (95%)
Netherlands
n/a
n/a
Portugal
n/a
n/a
Spain
19,500
18,870 (97%)
Sweden
12,310
10,160 (83%)
UK
123,770
117,700 (95%)
Source: World Factoring Yearbook 2001, BCR Publishing
In
te
rn
at
io
n
al
Total
1999
Domestic
International
690 (30%)
2,500 (31%)
1,350 (33%)
215 (3%)
4,200 (8%)
4,823 (21%)
200 (13%)
5,000 (5%)
n/a
n/a
630 (3%)
2,150 (17%)
6,070 (5%)
2,007
7,630
3,360
5,630
53,100
19,984
850
5,630
88,000
n/a
n/a
12,530
7,550
103,200
1,566 (78%)
5,000 (66%)
2,570 (76%
5,480 (97%)
50,100 (94%
16,253 (81%)
700 (82%)
5,630 (100%)
84,000 (95%)
n/a
n/a
11,900 (95%)
7,350 (97%)
98,000 (95%)
441 (22%)
2,630 (34%)
790 (24%)
150 (3%)
3,000 (6%)
3,731 (19%
150 (18%)
4,000 (5%)
n/a
n/a
630 (5%)
200 (3%)
5,200 (5%)
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
7.6
VOLUME OF DOMESTIC FACTORING BY PRODUCT
In the survey, respondents were asked to classify indicated volumes of
domestic and international factoring business by product type. Table 7.6 shows
the product make up of domestic factoring business. Unsurprisingly, with
domestic factoring being the dominant business, these figures virtually match
those given in Table 7.4 which showed a disaggregation of total factoring
volume by product type. This is not the case with international factoring, as
shown in sub-section 7.7.
Table 7.6
Country
Recourse
Domestic Factoring Disaggregated by Product Type
2000
Nonrecourse
5%
20%
Invoice
discounting
5%
30%
Austria
90%
Belgium
50%
Denmark
Finland
45%
20%
35%
France
9% - 18%
51% - 58%
24% - 39%
Germany
n/a
n/a
n/a
Greece
50%
15%
35%
Ireland
n/a
n/a
n/a
Italy
47.1%
52.9%
n.d.%
Netherlands
n/a
n/a
n/a
Portugal
n/a
n/a
n/a
Spain
14%
51%
35%
Sweden
80%
10%
10%
UK
13%
6%
81%
Source: GLE Study Survey Questionnaire 2002
7.7
90%
50%
1999
Nonrecourse
5%
20%
Invoice
discounting
5%
30%
45%
9% - 18%
n/a
n/a
n/a
50.6%
n/a
n/a
14%
85%
15%
15%
51% - 58%
n/a
n/a
n/a
49.4%
n/a
n/a
52%
5%
7%
40%
24% - 39%
n/a
n/a
n/a
n.d.%
n/a
n/a
34%
5%
78%
Recourse
VOLUME OF INTERNATIONAL FACTORING BY PRODUCT
As shown in Table 7.7, typically, non-recourse factoring is the main product
offered for international factoring. For example, Austria indicates non-recourse
factoring to account for 5% of domestic business, but 90% of international
business; similarly, Greece indicated 15% domestic, but 90% international.
Most other respondents also showed proportionally far higher reliance on nonrecourse for international business as opposed to domestic business.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Most often international trade is carried out using the ‘Two Factor Method’ as
shown diagramatically in Figure 7.1. Under this system the factor whose client
is the exporter remains responsible for all aspects of the services. The client
has no contractual relationship with the import factor. The import factor will
be responsible to the exporter factor for the credit risk on the debtors in his
country and for the collections. This means the majority of international
trading using this method is non-recourse.
Figure 7.1: Process of International Factoring
COUNTRY
COUNTRY
Goods
&
DEBTOR
CLIENT
Cop
Invoic
Payment
PrePaymen
Statements
Collection
Copy
IMPORT
FACTOR
EXPORT
FACTOR
Payment
Statu
Informatio
(Standardise
It is arguable that the ‘Eurozone’, in the monetary policy sense, will have
little effect on factoring of cross border trade within the EU primarily as
any affects will arguably have already been captured under the Exchange
Rate Mechanism. However, given the two factor system described above,
the factor
is not taking any exchange rate risks and therefore the only impact really is
on the respective client businesses.
The major restriction on growth of international factoring is related to the
domestic market bias favoured by smaller businesses.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Historically, most small businesses supply customers relatively local to
themselves. Naturally, the need to expand their market place to obtain
increased sales and resulting profits is a motivation for any growing
business. However, they will usually concentrate on expanding sales in
markets they better understand – i.e. the broader domestic market. Hence
for this, and many other reasons, smaller businesses tend to export less than
do larger businesses – and as confirmed in this report most factor clients are
smaller businesses.
Of course, over time as a result of the european free market, underpinned by
the single currency and resulting price transparancy, more smaller businesses
are expected to engage in intra-EU cross border trade. As such, it could be
argued that more smaller businesses will be seeking trade finance, and therefore
there could well be increased demand for international factoring services in the
future – albeit starting from a relatively low base.
Table 7.7
International Factoring Disaggregated by Product Type
2000
NonInvoice
recourse
discounting
Austria
10%
90%
Belgium
50%
20%
30%
Denmark
n/a
n/a
n/a
Finland
65%
35%
France
n/a
n/a
n/a
Germany
100%
Greece
5%
90%
5%
Ireland
n/a
n/a
n/a
Italy
17.9%
82.1%
n.d.%
Netherlands
n/a
n/a
n/a
Portugal
n/a
n/a
n/a
Spain
1%
99%
Sweden
100%
UK
10%
25%
65%
Source: GLE Study Survey Questionnaire 2002
Recourse
- 66 -
10%
50%
n/a
70%
n/a
-
1999
Nonrecourse
90%
20%
n/a
30%
n/a
100%
Invoice
discounting
30%
n/a
n/a
-
n/a
21.9%
n/a
n/a
1%
100%
12%
n/a
78.1%
n/a
n/a
99%
28%
n/a
n.d.%
n/a
n/a
60%
Recourse
Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
8.
SUMMARY CONCLUSIONS
The primary objectives of this study were:
q
An analysis on the use of factoring across the EU –
relevance and incidence; and
q
To examine the conditions of access to factoring for
SMEs identifying any obstacles.
In Chapters 4 and 5 we presented issues specific to SMEs of relevance,
incidence and access. In Chapters 6 and 7 we presented a detailed analysis of
the European factoring markets generally.
In this section we draw together the lessons that emerge from the respective
analysis.
In Chapter 4 we considered issues of relevance of factoring to SMEs and the
incidence of factoring by SMEs. Factoring supports cash flow financing but as
a composite product it does this through the integrated provision of:
q
q
q
Finance – noted as costs being comparative with alternative forms of
finance;
Professional Credit Management Services – accessing a quality of
professional service that would normally not reside within an SME and be
prohibitively expensive to SMEs; and
Credit Insurance – accessing this at effectively cheaper rates that an SME
could do so through a direct application.
It is for the above reasons that factoring is argued as being relevant to SMEs –
particularly over larger companies who would arguably have the internal
resources to access professional credit management services, and credit
protection.
Therefore, factoring (recourse / non-recourse) is more relevant to SMEs than it
is for larger businesses. Conversely, invoice discounting (which is about
finance rather than services) is more relevant to larger businesses than SMEs.
Having considered relevance to SMEs, we then considered incidence by SMEs.
Table 4.1a showed that, on average, 91% of factoring clients were SMEs with
annual turnovers of less than Euro 15mn. These figures support the claim that
factoring is relevant to SMEs.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
However, data presented in Table 4.1 also shows that the actual number of
SMEs using factoring is very small relative to the total likely SME population.
Therefore the question emerges: ‘if factoring is seen as relevant to SMEs why
is there a relatively small take up?’. This question is about ‘access’ to factoring
by SMEs.
The question of ‘access’ to factoring was the focus of Chapter 5. This was
dealt with from the perspective of access generally and access specifically to
SMEs against larger businesses. The following issues were considered in this
context:
q
q
q
q
q
q
q
Risk Assessment
Security and Collateral
Legal Framework
Business Sectors
Size and Legal Form of Business
Costs of Factoring Finance
Costs of Factoring Services
In each case it was shown that SME’s were not discriminated against in any
way against larger businesses. The only real barrier to access of factoring
concerns the relevance of factoring to certain types of business / sector.
Factoring is suitable for ‘sell and forget’ businesses / products. Factoring is not
suitable for businesses / products which are characterised by stage or lumpy
payment schedules, retentions. extended warranties or tie ins. This barrier to
access is inherently related to the way factoring works i.e. the factoring product
itself and as such cannot be addressed through any intervention without
changing the ‘essence’ of what factoring is and how it works.
In Chapter 5 we also considered the question of access with respect to various
demand side issues related to product understanding and image. Two key
observations were made:
1) Factoring and how to use as a product is generally not well understood by
SMEs, nor indeed by advisers to SMEs.
2) Factoring has a lingering perception of being finance of last resort and
therefore may signal to buyers that their supplier is in financial difficulities.
This is clearly related to point 1).
The improvement of understanding of the ‘factoring product’ – what it is, how
it works, and how to work with it – and parallel improvement in the image of
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
factoring are demand side weaknesses affecting access to factoring by SMEs
and these can be addressed through public policy intervention.
In Chapters 6 and 7 we presented a detailed analysis of the European factoring
markets generally. We reconsider some key messages here.
Factoring is a rapidly growing sector across Europe:
q
q
There has been a 55% increase in the number of factoring companies
operating in Europe over the past 10 years.
There has been a 57% increase in aggregate factoring volumes between
1998 and 2000.
The exact reasons behind this growth are difficult to confirm. However, one
can say that the sector has grown generally on the basis of ‘free market’
economic / business opportunity, and specifically following increased entry and
activity in the factoring markets by banks – who bring market presence, access
to business customers, and the required financial resources.
There are no apparent legal, fiscal or other government obstacles to factoring
market development. The only two ‘economic barriers to growth’ observed
are:
Prevailing Economic and Business Conditions
There is a clear link between availability of bank loans / overdrafts and the use
of factoring – i.e. a squeeze by banks leads to more firms seeking alternative
options, being factoring. On economic downturn, banks would generally seek
to reduce their risk exposure through reducing business credit, and in such
conditions, business could turn to factors.
However, it does not necessarily follow that factors will or can take all of this
‘new’ business. Of course, if businesses are increasingly failing, then the factor
will consider this closely in its risk assessment procedures.
A similar argument can be made in times of relative economic vibrancy, where
businesses have access to increased sales opportunities, but require increased
credit facilities to service these orders. For reasons touched on in this report,
banks may not be well placed to meet rapid and increasing demands for
working capital through overdrafts (re: issues of security). Therefore, under
‘boom’ conditions businesses might also be looking away from banks to
alternative sources of finance that can service their needs in line with increased
sales volumes.
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Analysis of Use of Factoring – ETD/00/503408 –Final Report (February 2003)
Economics of Scale
There is a natural barrier to market entry for factoring – being the high volumes
of capital required to advance to clients. This can restrict entry of firms, but
also, growth of factoring firms – we refer here particularly to non-bank owned
factors.
Overall, market growth is primarily supply driven and the public policy
challenge is to stimulate the demand side to meet / keep up with supply.
- 70 -
ANNEX 1
Analysis of Use of Factoring – ETD/00/503408 – Revised Draft Final Report, 02/03
ANNEX 1:
SURVEY RESPONDENT ORGANISATIONS’ CONTACTS
AUSTRIA
Contact
Organisation
Phone
Fax
Email
Ms. Waltraud Gruber
Intermarket Factoring Bank
+43-1-71765-ext 225
+43-1-7132855
Gruber@intermarket.at
Contact
Organisation
Phone
Fax
Email
Ms. Regina Cleary
Factorbank AG
+43-1-50678-0
Contact
Organisation
Mr. Leonfried Binder-Degenschild
Factorbank AG (Chairman of Austrian Factoring
Association)
+43-1-50678-0
Phone
Fax
Email
Regina.cleary@factorbank.com
BELGIUM
Contact
Organisation
Phone
Fax
Email
Mr. Geert Vannerum
IFB International Factors
+32-2-6453911
+32-2-6453999
Geert.vannerum@ifb.be
Contact
Organisation
Phone
Fax
Email
Mr. Fosseprez
Fortis
+32-2-6453911
+32-2-6453999
Mfosseprez@fortiscomfin.be
DENMARK
-1-
Analysis of Use of Factoring – ETD/00/503408 – Revised Draft Final Report, 02/03
Contact
Organisation
Phone
Fax
Email
Ms. Helle Holst
Midt Factoring
+45-9660-1100
+45-9660-1101
Helle.holst@midtfactoring.dk
FINLAND
Contact
Organisation
Phone
Fax
Email
Mr. Reima Letto
Finnish Bankers Association
+358-9-4056120
+358-9-40561291
Reima.letto@fba.fi
FRANCE
Contact
Organisation
Phone
Fax
Email
Mr. Antoine de Chabot
Association Française des Sociétés Financières (ASF)
+33-1 53 81 51 65
Contact
Organisation
Phone
Fax
Email
Mr. Jean-Marc Lacan
Factofrance
+33146357044
+33146356912
jeanmarc.lacan@facto.fr
Contact
Organisation
Phone
Fax
Email
Ms. Sandra Grand
Eurofactor
+33-1-40808569
+33-1-40808554
grand.sandra@eurofactor-network.com
a.dechabot@asf-france.com
-2-
Analysis of Use of Factoring – ETD/00/503408 – Revised Draft Final Report, 02/03
GERMANY
Contact
Organisation
Phone
Fax
Email
Dr. Ulrich Brink
Deutscher Factoring - Verband e.V.
+49 6131 28 77 070
+49 6131 28 77 099
br@mainz.juropartner.de
Contact
Organisation
Phone
Fax
Email
Ms. Barbara Kohl
Deutscher Factoring-Verband e.V
+49-6131-2877070
+49-6131-2877099
ko.mainz@juropartner.de
GREECE
Contact
Organisation
Phone
Fax
Email
Ms. Florence Indianou
ABC Factors
+301-0-7258180
+301-7258190
Findian@abcfactors.gr
IRELAND
Contact
Organisation
Phone
Fax
Email
Mr. Declan Moran
Bank of Ireland
+353-1-6140302
Contact
Organisation
Phone
Fax
Email
Ms. Ann Horan
Bank of Ireland
+353-1-6386241
declan.moran@bif.ie
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Analysis of Use of Factoring – ETD/00/503408 – Revised Draft Final Report, 02/03
ITALY
Contact
Organisation
Phone
Fax
Email
Dr. Nicoletta Burini
Assifact
Contact
Organisation
Phone
Fax
Email
Dr. Alessandro Carretta
Assifact
burini.assifact@tiscalinet.it
posta.assifact@tiscalinet.it
NETHERLANDS
Contact
Organisation
Phone
Fax
Email
Mr. Carlo Jussen
Fortis
+31-73-646-7515
+31-73-646-7810
c.jussen@fortiscomfin.nl
Contact
Organisation
Phone
Fax
Email
Mr. Dion van den Wijngaard
Fortis
+31-73-646-7515
+31-73-646-7810
d.vandenwijngaard@fortiscomfin.nl
Contact
Organisation
Phone
Fax
Email
Mr. Jeroen Kohnstamm
Factors Chain International
fci@fci.nl
-4-
Analysis of Use of Factoring – ETD/00/503408 – Revised Draft Final Report, 02/03
PORTUGAL
Contact
Organisation
Phone
Fax
Email
Ms. Margarida Ferreira
Association Portuguesa de Factoring (APEF)
+351-21-311-0444
Contact
Organisation
Phone
Fax
Email
Mr. Artur Pereira
Association Portuguesa de Factoring (APEF)
+351-2-26191600
apefactoring@mail.telepac.pt
Depint@clix.pt
SPAIN
Contact
Organisation
Phone
Fax
Email
Ms. Blanca Garcia
Association Espanola de Factoring
+34-9-17814400
+34-14314646
Contact
Organisation
Phone
Fax
Email
Ms. Cristina Bodi
Association Espanola de Factoring
+34-9-17814400
+34-14314646
Cristina@asnef.com
SWEDEN
Contact
Organisation
Phone
Fax
Email
Mr. Josta Fischer
Swedish Bankers Association
+468-4534460
+468-4534415
Josta.fischer@bankforeningen.se
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Analysis of Use of Factoring – ETD/00/503408 – Revised Draft Final Report, 02/03
UNITED KINGDOM
Contact
Organisation
Phone
Fax
Email
Mr. Robin Clarke
Factors and Discounters Association
020-83329955
Contact
Organisation
Phone
Fax
Email
Mr. Paul Hancock
Bank of America
020-78095801
Contact
Organisation
Phone
Fax
Email
Mr. Michael Bickers
BCR Publishing
+44-20-8466 6987
+44-20-8466 0654
fir@bcrpub.co.uk
robin.clarke@factors.org.uk
Paul.Hancock@bankofamerica.com
-6-
ANNEX 2
SURVEY QUESTIONNAIRE
ANALYSIS OF THE USE OF FACTORING SERVICES IN
EUROPE – A STUDY FOR THE EUROPEAN COMMISSION
«COUNTRY»
SECTION 1: GENERAL MARKET CONDITIONS
1.1
Please Provide a Brief Written Synopsis on the Origins and General Development of the
Factoring Industry in «Country».
(Write here or Reference any Attachment)
1.2
Please Provide a Brief Written Synopsis on the Prevailing Economic Environment and Its
Impact on Factoring Services in «Country».
(Write here or Reference any Attachment)
1.3
Please Provide a Brief Written Synopsis on the Market Performance Trends and Supply of
Factoring Services over the past Five Years in «Country»
(Write here or Reference any Attachment)
1.4
Please Provide a Brief Written Synopsis on the Short to Medium Term Future Growth and
Market Development Outlook for the Supply of Factoring Services in «Country»
(Write here or Reference any Attachment)
SECTION 2: FACTORING PRODUCT SPECIFICATIONS
This study is using the following product definitions:
Product
Recourse Factoring
Study Definition
Where a factoring company taking responsibility for their clients’ credit
management but retains the right to seek full recourse from the client for
any bad debts. The client may buy credit insurance separately but no
cover is provided by the Factor.
Non-Recourse Factoring
Where a factoring company takes responsibility for their clients’ credit
management and offers the client full credit cover against the eventuality
of the factor being unable to secure full payment of factored invoices.
Such cover may or may not be provided directly by the factor.
Invoice Discounting
Where the client continues to collect its own debts from customers, even
though it has received an advance from an Invoice Discounter. Receipts
are transferred to the Discounter and then returned, less the initial
advance and charges.
Note: For the purposes of this study, we do not wish to differentiate between ‘disclosed’ or ‘nondisclosed’ for any of the above products.
2.1
Against the Above Definitions, please confirm which products are available in «Country» –
(please mark with an ‘X’).
Yes
No
Recourse Factoring
Non-Recourse Factoring
Invoice Discounting
2.2
What is the Main Alternative Cash Flow Financing Products Available in «Country»
Product
Bank Overdraft
Bank Loans
Other 1 (please specify)
Other 2 (please specify)
Description
2.3
Please Rank the Current and Potential Relative Volume Importance of Cash Flow
Financing Products in «Country»
Product
Percentage of Total Market
Current
Estimated Percentage of
Total Market in 5 years Time
Recourse Factoring
%
%
Non-Recourse Factoring
%
%
Invoice Discounting
%
%
Bank Overdrafts
%
%
Other 1 (please specify)
%
%
Other 2 (please specify)
%
%
100%
100%
TOTAL CASH FLOW FINANCING
2.4
Please Rank the Current and Potential Relative Volume Importance by Product in
Financing International Trade in «Country»
Product
Percentage of Total
Market Current
Estimated Percentage of
Total Market in 5 years
Time
Recourse Factoring
%
%
Non-Recourse Factoring
%
%
Invoice Discounting
%
%
Letters of Credit
%
%
Other 1 (please specify)
%
%
Other 2 (please specify)
%
%
Other 3 (please specify)
%
%
Other 4 (please specify)
%
%
100%
100%
TOTAL INTERNATIONAL TRADE FINANCE
2.5
Please Indicate the Average Costs of Money Advanced by Product - i.e. Interest Rates (typical within a range) in «Country»
Product
Example Format
Recourse Factoring
Non-Recourse Factoring
Invoice Discounting
Typical Cost of Money Advanced (Base Rate + X%)
EURO LIBOR + Range 1%-3%
2.6
How Price Competitive is Money Advanced through Factoring to the Costs of other Cash
Flow Finance Products (say, Overdrafts) in «Country» (please indicate with an ‘X’)
G
Very Competitive
(Cost of money advanced through Factors is cheaper than alternative sources)
G Competitive
(Cost of money advanced through Factors is about the same as alternative sources)
G Not Competitive
(Cost of money advanced through Factors is more expensive than alternative sources)
2.7
_____
_____
_____
Please Indicate the Average Costs of Factoring Service Fee by Product in «Country»
Product
Recourse Factoring
Non-Recourse Factoring
Invoice Discounting
Typical Cost Factoring Fee (excluding cost of money) as
Percentage of Invoice Value – Give a Range if Necessary
SECTION 3: FACTORING INDUSTRY INFORMATION
3.1
G
G
G
How Many Factoring Companies is there Operating in «Country» by Year
Total Current Number
Total Number 5 Years Ago
Total Number 10 Years Ago
3.2
G
G
G
G
G
What has been the Pattern of Market Concentration been Like in «Country» over the Past
Five Years (please indicate with an ‘X’)
The Total Number of Factoring Firms has Increased Markedly
The Total Number of Factoring Firms has Increased Slightly
The Total Number of Factoring Firms has Remained About the Same
The Total Number of Factoring Firms has Reduced the Mergers / Acquisitions
The Total Number of Factoring Firms has Reduced through Lack of Business
3.3
____
____
____
____
____
Please Indicate the Total Number of Factoring Companies That Account for the Indicated
Percentages of Total Market Volume Share in «Country» Presently
Market Share
Number of Firms
50%
80%
100%
3.4
(total from Question 3.1)
Please Indicate the Current Ownership Structure of Factoring Companies in «Country»
Organisation Type
Banks
Non-Bank Financial
Private
Public
Foreign Subsidiaries
Percentage OR Actual Number of Total Factoring Companies
SECTION 4: FACTORING INDUSTRY STATISTICS
4.1
Please Indicate the Likely Current Market Distribution of ALL Factoring Clients by Size of
Client Turnover (either by actual numbers of clients, OR estimated percentage of total clients
falling within defined bands)
Client Annual Turnover Band
(EUROS)
Actual Number of Clients
Percentage of Total Clients
0 - 500,000
500,001 – 2,000,000
2,000,001 – 5,000,000
5,000,001 – 15,000,000
>15,000,000
TOTAL
4.2
100%
The Following Table gives Total Factored Volumes in «Country» for 2000, 1999 and 1998 as
published in the World Factoring Yearbook 2001. Please indicate the relative percentage of
volume by indicated product type
Total Factored Volume
Recourse Factoring
Non-Recourse Factoring
Invoice Discounting
%
%
%
%
%
%
%
%
%
(Millions Euros)
YEAR
2000
«Total_Factored_Volum
e_2000»
1999
«Total_Factored_Volum
e_1999»
1998
«Total_Factored_Volum
e_1998»
4.3
The Following Table gives Total DOMESTIC Factored Volumes in «Country» for 2000 and
1999 as published in the World Factoring Yearbook 2001. Please indicate the relative
percentage of volume by indicated product type
Total DOMESTIC
Recourse Factoring
Non-Recourse Factoring
Invoice Discounting
%
%
%
%
%
%
Factored Volume
(Millions Euros)
YEAR
2000
«Domestic_Factoring_2
000»
1999
«Domestic_Factoring_1
999»
4.4
The Following Table gives Total INTERNATIONAL Factored Volumes in «Country» for
2000 and 1999 as published in the World Factoring Yearbook 2001. Please indicate the
relative percentage of volume by indicated product type
Total
Recourse Factoring
Non-Recourse Factoring
Invoice Discounting
%
%
%
%
%
%
INTERNATIONAL
Factored Volume
(Millions Euros)
YEAR
2000
«International_Factoring
_2000»
1999
«International_Factoring
_1999»
4.5
Please Indicate the Distribution of Total Factoring Turnover by Business Sector (please
specify sector and relative proportion of the total)
Business Sector
Proportion of Total Factored Volume
Sector 1 (specify)
%
Sector 2 (specify)
%
Sector 3 (specify)
%
Sector 4 (specify)
%
Sector 5 (specify)
%
Sector 6 (specify)
%
Sector 7 (specify)
%
Sector 8 (specify)
%
TOTAL
100%
SECTION 5 LEGAL FRAMEWORK, BARRIERS AND OPPORTUNITIES FOR
MARKET DEVELOPMENT
5.1
Please Describe Any Government Fiscal Measures Affecting the Factoring Industry
Fiscal Measure
Y/N
Describe
Subsidies affecting Companies
Subsidies affecting Factors
Incentives affecting Companies
Incentives affecting Factors
Taxes affecting Companies
Taxes affecting Factors
Other Fiscal 1
Other Fiscal 2
5.2
Please Indicate any Typical Exclusions from Factoring Services
Issue
Exclusions
Business Sectors
(for example: Construction)
Legal Form of Business
(for example: Partnerships / Sole Traders)
Size of Turnover
(for example: micro businesses < Euro 50,000)
Years of Trading History
(for example: start ups / early stage businesses)
Nature of Goods / Services Sold
(for example: new technologies requiring testing before payment)
Other 1 – please specify
Other 2 – please specify
Other 3 – please specify
5.3
What are the Barriers Affecting Growth of the Factoring Industry in «Country» – and
indicate actions for mitigating the barrier. (Barriers could be Legal, Regulatory, Negative
Perception of the Industry by Business and Business Advisers or others)
Barrier to Factoring Growth
Actions Required to Overcome Barrier
THANK YOU FOR COMPLETING THIS
QUESTIONNAIRE
PLEASE RETURN ELECTRONICALLY (PREFERABLE), BY FAX, OR PHYSICALLY TO:
Mr. David Elliott
Study Manager
Greater London Enterprise International
Email: david.e@gle.co.uk
Phone: +44-20-79401525
Fax: +44-20-74031742
Physical and Postal Address: 28 Park Street, London SE1 9EQ, United Kingdom
ANNEX 3
1. “Factoring“ as a source of finance
 is unknown to me
 is known to me in principle but I have not looked at it in detail
 is well known to me, I have already looked at it in detail or know enterprises where factoring is being used
2. What is your opinion concerning the use of factoring by SMEs (small and medium-sized enterprises)?
 SMEs tend not to be aware of factoring and therefore it is hardly ever used
 in general SMEs are aware of factoring but it is hardly ever used
 a considerable number of SMEs are using factoring
 difficult to say
3. Do you believe that factoring is a useful and useable source of finance for SMEs?
 no  yes, for all SMEs
 yes, but mainly for larger SMEs (50 or more employees)
 difficult to say
4. What is your opinion concerning the future use of factoring by SMEs?
 will not change
 will decrease
 will increase
 difficult to say
5. What is your opinion with regard to the cost of factoring for SMEs?
 factoring is a comparatively cheap source of finance (compared to bank loans or overdrafts)
 costs for factoring roughly correspond to similar sources of finance
 factoring is too expensive for SMEs
 difficult to say
6. Is your organisation planning measures aimed at increasing the use of factoring by SMEs or have such measures
already been implemented in the past?
 no, and in principle we don’t believe that this is necessary
 no, but we believe that in principle such measures make sense
 yes (please explain) ____________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
C:\TEMP\Annex 3 - Demand Side Questionnaire.doc
ANNEX 4
Analysis of Use of Factoring – ETD/00/503408 – Revised Draft Final Report, 02/03
ANNEX 4:
DEMAND SIDE SURVEY ORGANISATIONS’ CONTACTS
COUNTRY
Belgium
Germany/UK
Austria
PHONE
+32 2 2307599
+32 2 2307964
+32 2 2307858
+32 2 2307628
UNICE
+32 2 2376511
European Small Business Alliance
+32 2 6396231
Zentralverband
des
Deutschen
Handwerks
and +49 228 985240
Bundesvereinigung der Fachverbande des Deutschen
Handwerks
Bundesverband
der
Selbstandigen/Deutscher +49 30 2804 9121
Gewerbeverband e.V.
The German Industry Association in the UK
+44 20 72337816
Wirtschaftskammer Osterreich
+43 1 50105-0
Belgium
Denmark
Spain
Finland
Sweden
Comite National Belge des Petites et Moyennes Entreprises
Organisation for dansk Handvaerk og Mindre Industri
Confederacion Espanola de la Pequena y Mediana Empresa
The Federation of Finnish Enterprises
Foretagarnas Riksorganisation
Belgium
Belgium
Germany
Germany
ORGANISATION
UEAPME
-1-
+32 2 2380411
+45 33 932000
+34 91 4116161
+358 9 229221
+46 8 4061700
FAX
+32 2 2307861
+32 2 2311445
+32 2 6449017
+49 228 9852411
+49 30 28049111
+44 20 78219488
+43 1 50206275
+43 1 50105250
+32 2 2309354
+45 33 320174
+34 91 5645269
+358 9 22922980
+46 8 245526
Analysis of Use of Factoring – ETD/00/503408 – Revised Draft Final Report, 02/03
France
France
France
Greece
Italy
Ireland
Ireland
Netherlands
Portugal
United
Kingdom
United
Kingdom
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Netherlands
Assemblee Permanente des Chambres de Metiers
Union Professionelle de l'Artisanat
Confederation Generale des Petites et Moyennes Entreprises
Confederation Generale des Petits et Moyennes
Entrepreneurs, Artisans et Commercants de Grece
Confederazione Generale Italiana dell'Artigianato
Irish Small and Medium Enterprises Association
Small Firms Association
Koninklijke Vereniging MKB-Nederland
Associacao Industrial Portuguesa
Forum of Private Business
+33 1 44431000
+33 1 47633131
+33 1 47627373
+30 210 3816600
+33 1 47203448
+33 1 47633110
+33 1 47730886
+30 1 3820735
+390 6 703741
+353 1 6622755
+353 1 6601011
+31 152 191212
+351 21 3601000
+44 1565 634467-9
+390 6 70452188
+353 1 6612157
+353 1 6601717
+31 152 191414
+351 21 3639047
+44 1565 650059
The British Chambers of Commerce
+44 20 75652000
+44 20 75652049
Fédération des Chamberes de Commerce et d’Industrie de
Belgique
The Danish Chamber of Commerce
The Central Chamber of Commerce of Finland
Assemblée des Chamberes Françaises de Commerce et
d’Industries (ACFCI)
Deutscher Industrie-und Handelskammerstag (DIHT)
Union of Hellenic Chambers of Commerce
The Chambers of Commerce of Ireland
Unione Italiana delle Cammere di Commercice, Industria,
Artigianato e Agricoltura (UNIONCAMERE)
Vereniging van Kamers van Koophandel en Fabrieken in
+32 2 2090550
+32 2 2090568
+45 33 950500
+358 9 696969
+33 1 40693700
+45 33 325216
+358 9 650303
+33 1 47206128
+49 30 20308-8
+30 2 1 0 3632702
+353 1 6612888
+390 6 47041
+49 30 20308-1000
+30 2 1 0 3622320
+353 1 6612811
+390 6 48903963
+31 348 426911
+31 348 421231
-2-
Analysis of Use of Factoring – ETD/00/503408 – Revised Draft Final Report, 02/03
Portugal
Spain
Sweden
Nederland
Associacao Comercial de Lisboa, Camara de Commercio e +3512 1 3224050
Industria Portuguesa
Consejo Superior de Camaras Oficiales de Commrcio, +34 91 5906900
Industria y Navegación de Espania
Svenska Handelskammarförbundet
+46 8 55510036
-3-
+3512 1 3224051
+34 91 5906908
+46 8 56631636
ANNEX 5
Analysis of Use of Factoring – ETD/00/503408 – Revised Draft Final Report, 11/02
ANNEX 5:
ECONOMIC AND FACTORING STATISTICS
GDP For EU Member States from 1998-2000 (Millions of Euros - Current Prices)
Country
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Netherlands
Portugal
Spain
Sweden
United Kingdom
Source:
2000
1999
1998
204842.336
248336
173889.029
131229
1404775.008
2025500
122881.288
103470.161
1164766.794
401089.073
115261.56
608787
248478.897
1550364.41
196657.638
235538
163215.932
120485
1350159.081
1974300
118007.333
89029.239
1108497.42
373663.504
100713.677
565483
227606.698
1368181.439
188645.607
224311.622
154068.639
115256.044
1297574.443
1916370.032
108977.58
77240.215
1068947.335
351648.178
108216.683
525436.296
213701.77
1271085.139
Extraction date: Fri May 03 18:40:34 2002
Extraction made by: Eurostat Data Shop Luxembourg
4, rue Alphonse Weicker, B.P. 453 ,L-2014 Luxembourg
-1-
Analysis of Use of Factoring – ETD/00/503408 – Revised Draft Final Report, 11/02
Total Factoring Volumes For EU Member States from 1998-2000 (Millions of Euros Current Prices)
Country
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Netherlands
Portugal
Spain
Sweden
UK
2000
1999
1998
2,275
8,000
4,050
7,130
52,450
23,483
1,500
6,500
110,000
15,900
8,995
19,500
12,310
123,770
2,007
7,630
3,360
5,630
53,100
19,984
850
6,160
88,000
20,500
7,450
12,530
7,550
103,200
1,832
4,366
2,894
5,230
44,255
20,323
596
3,957
75,319
17,702
5,545
9,936
7,677
84,255
Source: World Factoring Yearbook 2001, BRC Publishing
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