Factoring: option not a refuge

According to Ferenc Csáki, chairman of the Hungarian Factoring Association and CEO of Magyar Factor zRt, the expansion of factoring is always a sign of economic growth. – What is the role played by the purchasing of receivables in corporate financing? – The role of factoring is constantly growing both locally and globally. As a result of globalisation, not only production but financing has also become more specialised. Since suppliers of manufacturers are also specialised, they have to wait for longer periods to receive their money, until the end product reaches the customer. However, they cannot be expected to finance the entire production process. Factoring is useful for companies with limited assets, because these deals are based on the financial position of the customer instead of the seller. One of our most important objectives is to change the negative perception of factoring as a lest refuge for desperate businesses. On the contrary, it is a tool for growing enterprises. – Who are the clients of factoring services? – The majority of clients are SME-s, which play an essential role in economic growth. These have good contracts and potential for growth, but their assets are not sufficient to qualify for financing of working capital by banks. They are forced to assign their receivables in the beginning, but after reaching an optimal size they become able to finance themselves. Factoring helps in the best utilisation of production capacities. – What are the special features of the Hungarian market? – Medium size enterprises generally assign all their receivables to factoring companies, because this reduces their costs. Up till recent years, factoring showed double digit expansion, but this trend has been reversed as a vicious circle of debts has appeared again, leading to a major increase in risk for us. – If large companies paid their debts, would this lead to the vicious circle being broken, like it was ten years ago? – Hardly, since this time it is not the insolvency of a few big companies which paralyses the whole economy. Drastic reduction of the budget deficit with removal of money from the economy by various measures is taking place. HUF 1,000 billion has been removed this way in a single year. This is too much to be compensated for by factoring. Our expansion has slowed down noticeably. – What can your association do in this situation? – Our intention is reduce the cost of factoring by launching a program similar to “Lánchíd Faktoring” which had been implemented with the Ministry of Economy and Transport, using an EU subsidy to grant preferential rates of interest.