WHEN someone purchases an unpaid invoice or claim from a company, paying from 60 to 90 percent of its value up front and the rest after the claim is settled, it is called factoring - and it is a growing business in Slovakia.
The client company pays interest on the advance they get, along with a regular fee. The advantage is instant cash with which companies can finance their operations without waiting for invoices to be paid.
A new factoring company called Cash Reform Factoring entered the Slovak market in January of this year. The company will purchase business claims and do overall claims administration to improve businesses' cash flow.
Cash Reform is a subsidiary of the Czech company of the same name, the top independent factoring company in the Czech Republic. It has also provided factoring financing to some Slovak clients over the last couple years. Now a branch has been set up in Bratislava to focus on the Slovak market.
Factoring is meant especially for suppliers of goods or services that provide their customers with supplier loans, or have higher financial needs than their approved bank limit while still having a good customer base. Factoring is also used by firms that need additional financial resources but do not want to increase their loan burden, and those that want to save costs and transfer the administration of their claims to a specialized firm.
Cash Reform's goal is to compete with the bank factoring companies that currently dominate the Slovak market, said the company's executive director, Jan Kudera.
There are many smaller independent factoring companies in Slovakia but the major players in this field all belong to Slovakia's largest banking groups. The market's main factoring companies, like VÚB Factoring, Factoring of Tatra Banka, Factoring of Slovenská Sporiteľňa (SLSP) savings bank and OTP Factoring Slovensko, are members of the Association of Factoring Companies (AFS), which was established in 2003.
Factoring of SLSP was the top factoring company in 2006, according to AFS data, followed by VÚB Factoring and Factoring of Tatra Banka.
Kudera said that, in order to compete effectively, Cash Reform will offer flexibility and serve clients directly on their company premises.
However, Jozef Drga from Factoring SLSP still thinks that banks have many advantages over independent factoring companies.
"We can arrange the financing of supplies, overdraft, current accounts and various other services," Drga said. "Factoring companies within ERSTE (SLSP's parent company) in surrounding countries can cooperate, for instance, to check customers in different countries.
"We are also an associate member of FCI, which is a worldwide network of factoring companies, through which we can check up on firms and our clients' customers and we can offer them guarantees for these customers."
Drga said that bank factoring companies have more resources than independent ones and it allows them to offer better conditions for their clients. Banks also give all clients free access to 'e-factoring', which enables them to check the state of their claims at any time and see how customers are paying, who is not paying, who is past maturity and by how much, and what contracts they have concluded.
In Slovakia, factoring companies' portfolios of products are going to become more important, said AFS chairwoman Iveta Živicová, director of Tatra Banka's corporate financing department.
"Factoring companies incorporated in bank groups can offer their clients a comprehensive package of financial services and arrange everything through one person," Živicová said. "On the other hand, companies that do not belong to bank groups are neither bound by the rules of their parent banks, nor by a supervisory body, such as the National Bank of Slovakia in the case of banks, and thus are also willing and capable of accepting higher risk. They are sometimes also able to finance transactions that are not viable for bank groups."
"However," said Živicová, "Cash Reform might be the first of many companies that are not under a bank's protective wings but still belong to a large international group and therefore will have a good chance of breaking into the market."
Cash Reform has the backing of the largest independent factoring company in Great Britain: Bibby Financial Services, which specializes in providing financing services for small and medium-sized companies in a broad spectrum of sectors. Cash Reform became part of Bibby Financial Services this January. The Bibby Financial Services network includes 15 independent companies in the UK, the US, Australia and Poland.
Bibby Financial Services is a part of Bibby Line Group Ltd., a family company with a more than 200-year-old tradition of providing business-to-business services. Apart from financial services, its activities also include owning and operating ships, operating oil fields, and logistics services.
"Our target group in Slovakia is small and medium-sized companies with an annual turnover of between 20-500 million Czech crowns," Cash Reform director Michal Gabriel said. "In terms of the sectors we serve, there is no unequivocal specialization, as factoring is a profitable solution for clients from many sectors. However, the food industry, logistics, distribution, and trade sectors are all heavily represented in our client portfolio."
According to Živicová, more and more smaller companies are looking at factoring as an option now also.
"The interest in factoring companies in the small and medium business sectors is constantly growing," she said. "For example Tatra Banka has been, in recent years, lowering the qualification criteria of the minimal turnover, which is now at Sk10 million a year. And that is a value that covers a high percentage of companies in Slovakia."
According to Bibby Financial Services' executive director for Europe, Mark Cleaver, independent factoring in Slovakia and other central European countries has great growth potential.
"It is enough to mention that the factoring share of the GDP in the Czech Republic is 3.3 percent, compared to in Great Britain where it is 12 percent," Cleaver said.
26. Mar 2007 at 0:00 | Robert Valjent