Factoring, as a financial tool, is getting more and more widespread in Hungary, too. Factoring means the purchase of manufacturers’, service providers’, as well as large- and small traders’ receivables
- owed by one or more debtors,
- being undue and non-disputed,
- stemming from delivery of goods and/or services,
- being short-termed (usually 30-120 days),
with or without recourse.
Who do we recommend Factoring to?
To small and medium-sized enterprises
- that are player of the industry or trade market.
- that are rapidly growing but are not able to borrow bank loans necessary for further development as they are short of collaterals, and so they are forced to give up businesses that would be actually well-prospering.
- that were established in the near past and already have a proper market but do not have the necessary credit history required for borrowing loans yet.
- that cannot benefit from all market potentials or from the advantages of allowing discounts, due to the lack of growth potential in capital resources and common financing tools (usually as a result of being short of sufficient material collateral).
- that are manufacturing or trading with consumer/durable consumer- goods and/or low-investment-cost-products, or providing services the completion of which cannot be disputed.
- whose scheduled annual factoring turnover amounts not smaller than/exceeds HUF 100mn.
- that have several (rather multinational) debtors and issue a large number of invoices, yet do not have enough administrative resources to manage and collect receivables.
- whose liquidity could be improved with the help of an efficient payment reminder- and collection system.
Who do we not recommend Factoring to?
Offsets against the purchased receivable portfolio (invoice amount) are allowed up to a quite well pre-calculable level only. In case of enterprises, where that cannot be foreseen, (these are typically building – and assembling companies or software engineering enterprises), because they issue partial-invoices and have "special" warranty obligations, or face the problem that the completion of services cannot always be clearly confirmed, factoring is not feasible.
What is the difference between bank loans and factoring?
The key advantage of factoring compared to bank loans is that it provides financing without requiring material collateral.
Factoring is even more than simple lending, because it offers not only financing but also receivable management, collection and credit insurances if necessary.
What are the advantages of factoring?
The main advantages of factoring are that it is a secure and quick financing solution, and it also includes receivable management- and collection, continuous monitoring of the debtors’ solvency, as well as the possibility of credit insurances.
What kind of enterprises may take advantages of factoring?
Factoring is advantageous to all those enterprises that, besides financing, also consider of importance that trade receivables should be managed by a professional company and collection should work effectively.
Factoring is the only solution in cases if an enterprise is not able to borrow any bank loan due to the lack of material collateral, yet needs financing after all.
Factoring supports the enterprises by up-to-date rating of the debtors’ financial position, and it also may include credit insurance services.
According to our surveys it is the newly established companies, the enterprises going through an intensive development phases, and the ones with seasonal activities that usually apply for factoring.
In general terms, Factoring is very advantageous to all those enterprises that have a business strategy including professional financial management as an important element.
How may Factoring affect the expenses of an enterprise?
Factoring decreases the enterprises’ administration-, book-keeping- and receivable management costs.
When using Factoring, may business partners interpret it as facing financial difficulties?
Assignment of receivables to a factoring house is a quite common solution in the world of enterprises and actually means that the company uses professional and modern tools in its financial management.
Using factoring means that the enterprise attaches importance to scheduled cash-flow, and pays attention that the collection of receivables should be appropriately controlled.
UniCredit Bank Hungary Zrt. has developed several types of domestic factoring facilities. Besides the traditional ‘factoring with recourse’, our product portfolio also includes a ‘factoring with credit insurance cover’ facility.
Typical areas of domestic factoring
- department store factoring (suppliers of hypermarkets, or discount food-store-chains)
- suppliers of various processing industries (e.g. vehicle industry, metal industry, machine engineering, pharmaceutical industry, textile industry, etc.)
- wholesale trade (pl. secondary raw materials, pharmaceuticals, finished goods, etc.)
- agriculture, food industry and -trade
- service-providing sector (e.g. building management, labour leasing, counselling, etc.)
Export Factoring means that the factoring house purchases the customer’s receivables owed by foreign debtors. More and more customers of UniCredit Bank apply for this service of us and we have developed two versions of it.
One of these is that our Bank runs a credit check on foreign debtors and takes out a credit insurance on them that protects our customer against the debtors’ insolvency and, in case of a potential debt collection procedure, it involves other advantages, too (e.g. contribution to legal expenses).
The other version of Export Factoring is that our Bank contact another factoring house located in the country of the foreign debtor(s), by using the system of the international factoring alliance FCI (Factor Chain International). In that case it is the foreign factoring house (named import factor) that runs the credit check on the debtors and provides a 100% insolvency guarantee (if the terms stipulated in the General Rules of FCI are met).