Factoring: From the Code of King Hammurabi to the Present

Deferral of payment for delivered goods and services is practically crediting by the supplier to its customers. But, unlike a bank, a supplier does not have spare cash, credit analysts and debt collection services. Each payment delay creates a so-called cash gap and can leave a business without working capital. Factoring will help protect against risks and take business to a new level.

Factoring in simple words – it is the exchange of future revenue for money.

«You sold the goods on the condition of delayed or deferred payment and invoiced the customer. The bank to which you "delegated"  this account, pays it before the buyer does. Thus, an intermediary - a factor - appears in the calculations between the seller and the client, - explains the Chairman of the Board of MTB BANK PJSC. Yuriy Kralov, who recently headed the Factoring Development Committee of the Association of Ukrainian Banks. - As a result, the business receives working capital, pays rent, salaries to employees, continues production and develops. Factoring today – one of the most effective tools for preventing the occurrence of cash gaps, which gives business the opportunity for continuous development.

Factoring services in modern Ukraine

MTB BANK has already taken a number of steps in the field of development of factoring services in five years and today its market share is 4%. This is quite a large number, considering the fact that modern factoring services are not sufficiently developed in Ukraine. The field is highly monopolized, 92%  services are provided by a maximum of eight banks, this is not enough.  That is why it is so important to make efforts for the comprehensive development of such a promising financial instrument. Last year  MTB BANK was one of the first to join  «SupplierPlus».  This is an online platform that operates with digital documents, uses automatic data exchange and electronic signatures.  Therefore, suppliers receive  access to a source of working capital,  sell invoices on demand, and when needed, receive up to 100% of the invoice amount immediately after the sale. Buyers, in turn, work with longer payment terms without harming suppliers.

What motivates customers to choose the factoring service at MTB BANK

Factoring   from MTB BANK – this is an unlimited term of financing, an opportunity to supplement working capital,   increase financing due to sales growth, protection from financial risks and administrative management of receivables.

 «With factoring, turnover can be scaled, – emphasizes Yurii Kralov. - You can increase supply in high season or enter new markets. If the market demand decreases, you can choose for which deliveries you need the factoring service to avoid paying extra fees. Factoring is a low-risk and effective tool for expanding the access of small and medium-sized businesses  to financing.  I hope that in the coming years the factoring market will grow from today's 0.2-0.3% of GDP to at least 5%, and Ukraine will approach its Western partners in the level of development of trade financing.

The Ukrainian division of the world-famous company  Puratos Group,  an international corporation with a huge range of innovative products and unparalleled experience in their application in the bread, confectionery and chocolate industries, has been using MTB BANK's factoring service for several years.

"The growth of the market of ingredients for the bakery and confectionery industry not only stimulates the development of companies working in it, but also provokes the emergence of various difficulties, - says Serhiy Solovei, General Director of "Puratos Ukraine" . - At a certain stage of development, our company faced such a problem as a lack of working capital. The situation was complicated by the fact that the main clients gradually began to change the terms of payment, increasing the delay in payment. Of course, we partially shifted the solution of this issue to the shoulders of suppliers of raw materials and contract services. However, working only in this direction, the problem could not be solved. In 2017, we entered into a factoring agreement with MTB BANK, under which we receive full payment for products earlier than the term specified in the agreement with the debtor. And the debtor is already settled with the factor. It was not easy to agree on a factoring scheme with clients, but the result exceeded expectations. With the help of a new method of financing, we increased the volume of sales and solved a set of tasks, including freeing up working capital and increasing the number of processed orders.

 The company "Puratos Ukraine" applies classic non-recourse factoring to finance sales to speed up cash receipts 

in from debtors.

«At the same time, we can immediately write off the receivables, that is, in addition to the fact that we accelerate the turnover of the receivables, increase liquidity and receive working capital faster, we also reduce our commercial risks, - emphasizes Denys Zavertaniy, financial director "Puratos Ukraine". - Due to the fact that the urgency of factoring is always correlated with the turnover of receivables, the financing rate is more flexible. Moreover, compared to a classic credit line, non-recourse factoring does not increase the debt burden of the supplier company. Non-recourse factoring also has a positive effect on the fulfillment of financial covenants, reducing the level of receivables, transforming them into working capital. Technically, everything is quite simple: we give the register for financing, the debtor confirms the supplies listed in it, and the transaction is financed on the same day. All this happens remotely, electronically, without paper document circulation. Now it is especially relevant for business». 

Prospects of development

Today factoring – global trend, summarizes Chairman of the Management Board of MTB BANK Yury Kralov. This tool works effectively in developed economies, and our country has great potential for its application. It is very important that the process of implementation of this financing instrument is initiated and supported by the National Bank of Ukraine,  by the International Finance Corporation (IFC), the EBRD and USAID within the framework of the "Transformation of the Financial Sector" project.