What Is Bank Factoring?

Factoring business is an emerging comprehensive financial service that integrates trade financing, commercial credit investigation, accounts receivable management and credit risk guarantee. Bank factoring business can be divided into domestic factoring business and foreign factoring business.

Bank factoring

In recent years, with the increasingly fierce international trade competition, the international trade buyer market has gradually formed. Correct

International Uniform Private Law Association

Generally speaking, domestic factoring business is also called account receivable financing, which means that the company transfers your receivables to the bank's business that obtains funds in advance after passing the bank's review. According to different types, it can be divided into buyout factoring business and repurchase factoring business. The auditing point of factoring business banks is mainly to review the repayment ability of debtors (that is, companies that owe company money).

Foreign factoring business is mainly a financial product designed based on the import and export business of import and export enterprises, and its main role is to allow import and export enterprises to obtain funds in advance. Specific products include package loans, discounted invoices, etc.

On November 5, 2008, Shenzhen Development Bank (SZ000001, hereinafter referred to as Shenzhen Development) announced that its factoring business system was officially launched. At the same time, a number of domestic banks have also increased their emphasis on factoring business, and have launched related projects. Among them, in the first half of 2008, Minsheng Bank (5.07, -0.01, -0.20%) introduced a factoring team in Taiwan and established a second-level factoring business unit. The bank's international factoring business has grown significantly, with a business volume of more than $ 200 million.

Suddenly, factoring emerged as a new favorite in domestic banking.

In fact, with the implementation of the tightened monetary policy, the financing difficulties of SMEs have further increased, and the financial crisis has increased the credit risk of trading enterprises, which have provided important opportunities for the development of bank factoring business.

The opportunity of the financial crisis

"The changes in the market environment have greatly strengthened the awareness of corporate financial management and risk management. Recently, we have received much higher factoring business enquiries than in previous years," said Lin Xiaozhong, general manager of the Shenzhen Development Factoring Business Center. Reasoning can be said to be the right medicine. On the one hand, factoring financing can ease the financial pressure of enterprises, and on the other hand, the bad debt guarantee function in non-recourse factoring can also eliminate the risk of bad debts. "

Factoring business means that banks and other factoring agents approve and purchase through corresponding accounts receivable, and provide sellers with short-term and recyclable trade financing, account collection, and bad debt guarantee services based on the buyer's credit conditions.

In recent years, regardless of domestic trade or international trade, credit sales settlement methods have become increasingly popular. Taking international trade as an example, the utilization rate of L / C (letter of credit) has dropped to 16%, and in developed countries has dropped below 10%. Credit sales have basically replaced letters of credit and become the mainstream settlement method. As a result, corporate accounts receivable are increasing.

The data shows that the total amount of receivables of Chinese enterprises is currently about 6 trillion yuan, accounting for about 30% of the total assets of enterprises, and SMEs, which account for more than 90% of the number of enterprises, are deeply trapped in accounts receivable, and their assets More than 60% of the value is accounts receivable. Accounts receivable increase the operating pressure of the company from two aspects, one is the pressure of funds, and the other is the risk of bad debts, which is a big burden on the development of enterprises.

Lin Xiaozhong believes that with the spread and deepening of the global financial tsunami, on the one hand, the delay in the collection period has intensified the pressure on corporate capital chains, and the need for "blood production" to revitalize accounts receivable has become more urgent. On the other hand, companies facing difficulties in operating globally will increase the risk of collection. How to judge and manage buyer credit, how to keep an eye on each account receivable, how to promptly and effectively collect debts and avoid collection risks. These specialties Very strong work, even if equipped with specialized talents, it is difficult for the company itself to do well in the short term, which has created huge business opportunities for professional factorers.

The general manager of a small and medium-sized home improvement export company in Shenzhen said: "Since the U.S. financial crisis, importers centered on U.S. customers have been requesting extensions of payment periods in order to alleviate funding pressure. Some accounts have changed from 2-3 in the past. The month has been extended to the current 4-5 months or even half a year, and our funding pressure is very high.

Research data show that the ineffective cost of US companies is only 3% (the ineffective cost refers to the sum of bad debts, arrears losses, and management costs). This is due to the importance and strict credit management of the companies in the country. The average invalid cost of Chinese enterprises is as high as 14%, and the average profit rate of Chinese enterprises is only a few percent. Credit management is an important issue that needs to be solved for the development of Chinese enterprises.

Domestic space

In fact, after the "Ericsson" incident in Nanjing in 2002, factoring began to truly enter the vision of Chinese enterprises and financial institutions.

In March 2002, Nanjing Ericsson Panda Mobile Communication Equipment Co., Ltd. repaid Bank of Communications (6.36, 0.11, 1.76%), Industrial and Commercial Bank of China (3.95, -0.04, -1.00%), and Bank of China (3.49, -0.02, -0.57) in advance. %) And other loans totaling 1.99 billion yuan, turned to Citibank to borrow the same huge sum. One of the important triggers of Nanjing Ericsson's "reversal" of foreign banks is that Citi can provide factoring services, but it is difficult for Chinese capital to do so.

That incident triggered a great discussion of the competitiveness of foreign capital in the financial industry.

After 6 years, many domestic banks have also launched factoring business. But compared to China's total trade, China's factoring business is still very small. Jeroen Kohnstamm, secretary general of the International Federation of Factors, told this newspaper.

The lag in the development of factoring business in China, in addition to the credit environment and legal system, needs to be complete, and it is also closely related to the professional management capabilities of banks. Due to cost considerations, most Chinese factoring companies currently do not have a dedicated factoring business system, and the operation of factoring business is still in a semi-manual state.

Whether a bank can grasp the development opportunities of factoring business depends more on the bank's business processing capabilities. The factoring business involves highly specialized work such as credit management, collection management, and account management. It requires an experienced professional factoring team to provide services.

At present, banks that provide factoring services in China often do not have independent factoring business organizations. Generally, there are scattered business functions and insufficient professionalism, and it is difficult to provide customers with full-process, systematic, and professional solutions.

It is understood that Minsheng Bank has introduced an advanced factoring team-Taiwan Lease Dihe Co., Ltd., which is the largest leasing company in Taiwan. Its business includes equipment leasing, overseas financing, and accounts receivable offtake. At the end of 2005, the total assets were 99.6 million US dollars, about NT $ 364 million, and the net value was 10 million US dollars.

From the perspective of international factoring business, China's annual foreign trade export value is as high as US $ 1.2 trillion, of which 70% is settled by non-letter of credit, which is equivalent to US $ 840 billion. If the factoring business penetrates to 10%, it will reach US $ 84 billion. Since China's import value and export value are similar, a simple estimation using the above method shows that the import factoring market share is almost the same as the export factoring.

At present, from the perspective of comprehensive strength, the Bank of China stands out in factoring business. SDB, Minsheng, China Merchants, ICBC, Bank of Communications, and some foreign banks are among the second echelon.

Obviously, in the next few years, China will become the world's largest factoring market, and the factoring business in the banking industry will also be reshuffled.

Source: Economic Observation Network