Factoring service has potential

Update: May, 11/2016 - 09:00
Employees process vegetables for exports at An Giang Fruit-Vegetables and Food Stuff JSC. A series of free trade agreements have offered opportunities for Vietnamese businesses to increase production and exports, but many of them lack the financial means to expand. – VNA/VNS Photo Vũ Sinh
Viet Nam News

HCM CITY – Factoring services for merchandise exports in Việt Nam will become more essential than ever before as the country integrates more deeply into the international economy, the secretary general of Việt Nam Banks Association (VNBA) said yesterday at an international factoring conference held in HCM City.

Trần Thị Hồng Hạnh said that total factoring volume remained modest and underdeveloped in Việt Nam compared to other ASEAN countries, including Singapore, Indonesia, Malaysia and Thailand.

She said that a series of free trade agreements, including the Trans Pacific Partnership (TPP), had opened up opportunities for Vietnamese businesses to increase production and exports, but many of the country’s producers and traders lacked the financial means to expand.

Peter Mulroy, the secretary general of Factors Chain International (FCI), explained that factoring is a package of services designed to ease international trade by offering risk-mitigation tools and liquidity together to support growth in trade between importers and exporters.

“If you want to expand foreign sales, you will have to offer buyer-friendly terms such as an open account, which factoring can support without reducing your security or affecting your cash flow,” he added.

Mulroy said that global trade was moving toward open accounts, and that because of intense competition for export markets, foreign buyers often encouraged exporters to ship on open account terms.

“In addition, the extension of credit by the seller to the buyer is more common abroad,” he said. “Therefore, exporters who are reluctant to extend credit may face the possibility of the loss of the sale to their competitors.”

Hạnh of VBSA said that factoring services would allow businesses to take advantage of imminent trade growth opportunities, both at home and abroad, by providing short-term funding against receivables, together with management solutions, such as risk protection and collection services.

Kyle Kelhofer, country manager in Việt Nam for International Finance Corporation, Cambodia and Laos, said, “The increased trend of globalised markets and falling trade barriers are leading to multiplication of cross-border business opportunities.”

“Vietnamese small- and medium-sized enterprises can increasingly leverage new trade finance facilities such as factoring to improve competitiveness and attract foreign partners so that they can expand trade volume and grow business,” he added.

Also speaking at the conference, Jinchang Lai, principal operations officer for Finance and Market Global Practices at IFC, said factoring would be necessary to help enterprises manage their accounts receivable and provide working capital to these enterprises.

According to FCI, in 2014, factoring in Việt Nam handled by FCI members amounted to 100 million euros, a fraction of the total volume of business handled by its factoring companies worldwide, which neared 2,373 billion euros.

Factoring services in Việt Nam are offered by eight official providers, three of which are members of FCI, a global network of leading factoring players.

Nguyễn Thị Thanh Hằng, deputy head of the State Bank of Việt Nam’s Department for Banking Prudential Regulations, said Việt Nam’s regulations for the development of international factoring services were inadequate, causing difficulties for the supply and use factoring services in the country.

SBV plans to complete a legal framework governing factoring.

With an annual international trade volume of about US$300 billion, Việt Nam has significant potential for the development of international factoring, according to Hằng.

Jinchang Lai said recently that the Government of Việt Nam had decided to increase the number of enterprises to one million by 2020 from the current 530,000.

Experts, however, are concerned about how the country will provide financial services to the one million enterprises in only a few years’ time, and whether the financial industry will be prepared by that time.

He said that IFC would work with the Government and the lending industry in Việt Nam, including banks as well as non-bank lenders in this area, to develop factoring services.

Once businesses realise the full benefits of factoring services, the demand will increase, conference delegates said. VNS