{"id":575599,"date":"2020-10-20T04:20:59","date_gmt":"2020-10-20T04:20:59","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/2020\/10\/20\/enterprise-explains-factoring\/"},"modified":"2020-10-20T04:20:59","modified_gmt":"2020-10-20T04:20:59","slug":"enterprise-explains-factoring","status":"publish","type":"post","link":"https:\/\/enterpriseam.com\/egypt\/2020\/10\/20\/enterprise-explains-factoring\/","title":{"rendered":"Enterprise Explains: Factoring"},"content":{"rendered":"

<\/a> Every investment bank in Egypt wants to be a non-bank financial services player \u2014 and plenty want to start with factoring. <\/strong>The latest entrant is Prime Holding subsidiary Prime Fintech, whose Endorse arm is spinning up factoring, financial leasing and consumer finance offerings. Mervat Erian, Prime Fintech\u2019s CEO, suggested factoring is a \u201cmuch needed and very much underplayed\u201d form of finance in Egypt. If you concede that the formal banking system has basically refused to extend real (traditional) finance to small businesses, we agree.<\/p>\n

So we know lots of investment banks have NBFS arms that want to offer factoring. But what is factoring, exactly? <\/strong><\/p>\n

Think of it as the <\/strong>second-oldest profession<\/a><\/strong>.<\/strong> In the simplest possible terms? Let\u2019s say y ou\u2019re a business with uncollected receivables (invoices your clients haven\u2019t paid yet). You sell those invoices at a discount to a third party \u2014 called a factor \u2014 who goes on to collect them instead of you. You get money today by clearing out your accounts receivable, and the factor makes a profit.<\/p>\n

It\u2019s usually a <\/strong>relatively expensive form<\/a><\/strong> of financing<\/strong>, but if the company wants to receive up to 80%<\/a> of the value of the accounts receivables quickly, rather than waiting for the length of the credit terms to receive payment, factoring could be the way to go.<\/p>\n

Who benefits the most?<\/strong> It\u2019s particularly useful for companies that conduct a large portion of their sales through accounts receivables, who might experience cash flow shortfalls if their short-term debts exceed their sales revenue. By purchasing the customer\u2019s debt, the factor provides the company with the working capital to continue trading. This is particularly valuable for rapidly growing companies that need plenty of access to cash. It also transfers the risk of default \u2014 the risk that the customer won\u2019t pay the accounts receivables \u2014 to the factor.<\/p>\n

And how does it work?<\/strong> A factor charges a factoring fee in exchange for quickly releasing funds to the company selling the receivables. This fee is a percentage of the receivables<\/a>, with the rate depending on industry, the volume of receivables being collected, how long the receivables have been outstanding, and most importantly the creditworthiness of the customers paying the receivables. If the factor believes the risk of default is high, the fee charged to the company selling the receivables will be higher, while if the default risk is low, the factor fee will be lower too.<\/p>\n

Going further:<\/strong><\/p>\n