“Factoring vis-a-vis Credit Insurance”€¦ · “Factoring vis-a-vis Credit Insurance ......

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