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ICISA ANNUAL MEETING The Hague, Netherlands
September 2013 “Factoring vis-a-vis Credit Insurance”
By Jeroen Kohnstamm Former Secretary General
Factors Chain International
FILE2013103
FCI 1968
Amsterdam Headquarters
Factoring exploring new horizons
E x p l o r i n g N e w H o r i z o n s
FCI IN NUMBERS
266 MEMBERS (today)
74 COUNTRIES (today)
€ 1,303 BILLION (2012)
E x p l o r i n g N e w H o r i z o n s
WORLD 2012
FACTORING COMPANIES
2,272
DOMESTIC VOLUME
€ 1,780 BILLION
INTERNATIONAL VOLUME
€ 352 BILLION
E x p l o r i n g N e w H o r i z o n s
Domestic International
EUROPE 1,105 194
AMERICAS 177 11
ASIA 425 147
AUSTR./N.Z. 50 .2
AFRICA 23 .5
2012 (IN BILLIONS OF EUR)
French
Seller
French
Buyer
French
1 Financing
2 Collection service
3 Credit Risk Protection
DOMESTIC FACTORING
Factor
Exporter Importer
Export Import
Credit Risk Protection
2 Financing
3 Collection service
1
Chinese French
French
INTERNATIONAL FACTORING
Chinese
Factor Factor
MECHANICS
of
INTERNATIONAL
FACTORING
TRADE PROMOTION
1 Quality of Product
2 Price
3 Terms of Sale
L/C
letter of credit
D/P
documents/
payment
D/A
documents/
acceptance
Open Account
EXP. IMP.
OPEN ACCOUNT SALES
DAY
1 shipment/invoice date
13 delivery date
60 invoice due date
60+?? collection date
60+90 payment under
guarantee date
EXP
EF
IMP
IF
1
EXPORTER (EXP) AND EXPORT
FACTOR (EF) SIGN EXPORT
FACTORING CONTRACT
EXP IMP
EF IF
2
EF SENDS REQUESTS TO SELECTED IF’S
EXP GIVES EF LISTING OF IMPORTERS,
INDICATING NECESSARY CREDIT LINES
3
EXP IMP
EF IF
INFORMS EXP ABOUT LIMIT
DECISIONS (VIA EF)
IMPORT FACTOR CHECKS CREDIT
WORTHINESS OF IMPORTER(S)
EXP
4
IMP
EF IF
IMPORTER PLACES NEW ORDER
WITH EXPORTER
5
EXP IMP
EF IF
EXPORTER SENDS GOODS,
INVOICE & SHIPPING DOCUMENTS
TO IMPORTER
6
EXP IMP
EF IF
EXPORTER SENDS INVOICE DETAILS
TO EF (AND RECEIVES IMMEDIATE
CASH ADVANCE FROM EF)
7
EXP IMP
EF IF
IF BOOKS INVOICE AND REGULARLY
REMINDS THE IMPORTER
EF SENDS INVOICE DETAILS TO IF
8
EXP IMP
EF IF
IMPORTER PAYS FULL INVOICE
AMOUNT TO IF AT DUE DATE OR
SHORTLY THEREAFTER
9
EXP IMP
EF IF
EF PAYS REST-AMOUNT TO EXPORTER
IF IMMEDIATELY TRANSFERS FULL
INVOICE AMOUNT TO EF
E x p l o r i n g N e w H o r i z o n s
ADVANTAGES FOR IMPORTERS
1. Purchase on convenient 'open
account' terms
2. Expanded purchasing power without
blocking existing lines of credit
3. Orders can be placed swiftly without
incurring delays, L/C opening charges,
negotiation charges, etc.
4. Importer uses his own language for
communicating with Import Factor
Exporter
Export Factor
CANADA
Import
Factor
POLAND
Import
Factor
JAPAN
Import
Factor
COST OF EXPORT FACTORING?
0.5%-1.0% OF INVOICE VALUE
total export volume
average invoice value
number of importers
type of industry
ATTRACTIONS/ADVANTAGES
for companies to use factoring
rather than credit insurance?
FACTORS USING CREDIT
INSURANCE COMPANIES
Outsourcing of debtor credit
risk management
Partial outsourcing
Reinsurance
RISK OF ANTI-SELECTION
against the credit insurer
regarding both covered suppliers
and covered buyers?
Whole turnover issue
Is the business coming to a
credit insurer via a factoring
company more risky than
business coming directly from
contracts with suppliers?
Two extreme points of view
PAYMENTS UNDER GUARANTEE
(in millions and as % of turnover)
2008 € 16.2 0.13%
2007 € 12.0 0.12%
2011 € 5.5 0.03%
2009 € 31.3 0.32%
2010 € 6.1 0.04%
2012 € 12.1 0.05%
2013 (4 months) € 2.4 0.04%
DILUTION OF CREDIT TERMS:
Through factoring, are credit
insurers drawn into
inappropriate credit terms for
the underlying trade?
UNDUE ENRICHMENT FOR
FACTORS when insurer will
pay 90%, while factor has
only advanced 80% to the
supplier?
factor owes supplier 100%,
not 80%!!!!
WHY DO FACTORS SEEK
CREDIT INSURANCE?
capacity
outsourcing
more stable financial
performance
DO FACTORS DIVIDE THEIR
portfolio among credit
insurers and is there a risk of
double insurance?
actual cases?
REVERSE FACTORING /
SUPPLY CHAIN FINANCE
is growing and leads to a
concentration of risk for
factors and insurers.
historical experience
SHOULD CREDIT INSURERS
OFFER “FACTORING”
SERVICES?
mixed track record
opportunities for
increased cooperation
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