11:26 | 28/07/2015 Finance - Banking
(VEN) - To sell goods and provide services, many enterprises have applied reimbursement methods (TTR - Telegraphic Transfer Reimbursements or D/A - Documents Against Acceptance). In addition, the need of capital for manufacturing and trade requires enterprises to find solutions to fasten their working capital cycle. Therefore, with its advantages, factoring service has become a common option for many enterprises.
According to statistics of the Factor Chain International (FCI), factoring service is available in 74 countries with the involvement of 264 banks and is applied to TTR or D/A transactions. Factoring service in Vietnam has been developed rapidly in leading exports such as textiles and garments, leather and footwear, processed food, wooden furniture, and electronics and spare parts. According to the FCI’s statistics, factoring service revenue in Vietnam reached 100 million euro in 2013, 1.5 times higher than that in the 2011-2013 period when factoring service export revenues contributed 80 percent.
Factoring service, a complete financial package, combines working capital financing, credit risk prevention, and management and collection of receivables. Under the agreements between a factor and an exporting enterprise (a seller), the factor buys the seller’s receivables which are not claimable, and takes on responsibilities for a buyer’s ability to pay. Due to any credit reasons, the buyer goes bankrupt or is unable to pay, the factor will pay the seller. When the seller and buyer are in different countries, it is called as international factoring service (or exporting factoring service).
Although factoring service has considerable benefits, it has not been dramatically developed in Vietnam on the grounds that (i) its benefits have not been understood completely, especially its supports for developing markets and relations with partners; (ii) enterprises often accept risks in terms of international trade since they are not fully aware of the application of risk preventions; and (iii) most enterprises usually hesitate to use such a factoring service due to its service fees while its real economical efficiencies are that banks support enterprises in the management of receivables, collection of debts and reducing risks.
At BIDV, exporting factoring service (international factoring service) has been developed for the last two years and offered a number of advantages and improvements for clients. Firstly, BIDV may advance up to 98 percent of the invoice value to the exporters with the factoring term up to 220 days and no collateral required (if transactions meet some certain requirements). As a result, the cash flows of exporters are accelerated since the exporting factoring service fastens payment collections and working capital cycles, and helps to develop manufacturing and trading operations. Secondly, the receivables of enterprises are assured resulting to no existence of tied-up capital and bad debts. Thirdly, this service has reversed the responsibilities of debt collections from enterprises to BIDV, enterprises may reduce time- and cost-consuming on the administrations and documentations of debt collections, maintain good relations with other partners as well as authorities, and concentrate on improvement of manufactures. Finally, the exporting factoring service increases the competitive advantages of enterprises when enterprises accept reimbursement methods without worries about the efficiencies of working capital.
Moreover, in order to increase benefits to our clients, BIDV has signigicantly improved its factoring service. First, exporting markets in the world has been widened. Years ago, exporting factoring service was restricted to the exporting markets in the US and Canada. Nowadays, most clients might use BIDV’s factoring service in any exporting markets in the world, not only in North America. Apart from exporting markets, the currency used in exporting factoring service has been persified. Currently, not only transactions in US dollars but also in other curencies such as euro, JPY and HKD could be accepted for the exporting factoring service.
Factoring service in Vietnam will become more popular and be developed considerably together with other traditional types of credit. Implementation and development of factoring service will increase BIDV’s competitiveness, especially in the circumstance that Vietnam is quickly integrating with the global economy./.