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Al Mal Newspaper
21/03/2010

Ahmed Shaheen, Egypt Factors' General Manager, says to "Al-Maal":

Egypt Factors targets expansion of domestic factoring and purchase factors to support SMEs

  • US$ 14 million of factoring turnover since beginning of 2010; We welcome any new players
  • 1st stage of increasing company capital completed by end of this March
  • Negotiations underway with 30 companies to benefit from factoring products
  • Future partnerships with a number of banks and companies to reach a wider client base

BY NASHWA ABDEL WAHAB, Al-Maal, Sunday, 21 March 2010.

Graph: Sectors comprising Egypt Factors's portfolio in January 2010

Sector

%

Packaging and wrapping

21

Home furnishings

16

Food stuff

16

Textiles

13

Petrochemicals

12

Industrial inputs

6

Chemicals

6

Furniture

4

Vehicles

3

Industries feeding vehicles production

3

Others

3

Egypt Factors, the No. 1 factoring company in the local market, is getting ready to implement several promising plans in the local economy with the aim of expanding the factoring business and doubling its turnover during this year, after growing significantly in 2009 to US$ 110 million. They will be based on several pillars including expansion of delivery of all types of factoring (such as international factoring of exports/ imports, purchase factoring, and domestic factoring to meet the needs of Small and Medium Enterprises (SMEs)); negotiating with different banks and institutions for cooperation as regards expanding the base of the product users; developing a training program to enhance the efficiency of the company staff regarding factoring; and, last but not the least, continuing awareness interventions.

The factoring turnover was about $ 110 million in 2009 compared to only $ 50 million in 2008. Egypt Factors acquired a controlling stake of 55% through undertaking $60 million of total factoring transactions while ECGE carried out the remaining part, i.e. $ 50 million.

At the beginning, Ahmed Shaheen, General Manager of Egypt Factors, expected that the factoring business would achieve a noticeable growth during the coming period inside the Egyptian market, driven by significant demand from investors and company owners for it, thus qualifying it to grow by leaps and bounds. Contributing to this is expansion of users of its products, i.e. SMEs owners who did not know much about that activity last year while large companies benefited from imports and exports factoring. Sheen pointed out that the company conducted factoring transactions worth of $ 14 million during January and February to be added to total factoring volume inside the company, which was $ 60 million during last year.

Shaheen pointed out that fast track growth in factoring business promoted the company to increase its capital to $ 12 million, expecting end of subscription of the first offer for capital increase by collecting about $ 3 million by current March. This, he explained, comes within a plan to increase the company paid capital from $ 5 million to $ 12 million to be implemented in consecutive stages to keep abreast of the tremendous increase in demand for factoring, which achieved significant growth rates of 120% during last year.

He explained that the First International Factoring Conference, hosted by Egypt last January, contributed clearly to familiarizing the local business circles with the importance of factoring. It also succeeded in achieving its key objectives, i.e. familiarizing financial institutions and the Egyptian economy with the importance of factoring as one of the financial tools to finance domestic as well as international trade, and SMEs. He also commended significant demand for factoring by all participants in the market, whether by the many companies which applied to the Egyptian Financial Supervisory Authority (EFSA) for licenses to practice the business, interest of many entities including businessmen associations in getting to know it and how to benefit from it, or the media turning to acquainting the business community with the factoring mechanism.

He unveiled an increase in demand by companies for using the factoring mechanism: 30 companies, after the conference, applied for negotiations with Egypt Factors regarding how to benefit from factoring and have access to instant finance. He pointed out the diversity of areas where these companies work, ranging from chemicals, food stuff, paints, packaging materials, clothes and textiles, and furniture to information technology.

The general director of Egypt Factors illustrated the outlines of the future plan of his company, which is based on key pillars, the most important of which is provision of factoring services to more SMEs, doubling factoring transactions, expanding delivery of all types of factoring services including international factoring for imports or exports, purchase factoring, and domestic factoring to meet the needs of SMEs which will be able to purchase from their local and foreign suppliers through more flexible methods of payment while suppliers will get from SMEs the value of their invoices instantly, thus providing immediate liquidity. Other features of the plan is negotiation with various banks and institutions for cooperation regarding expansion of base of those benefiting from the business, development of a training program for enhancing efficiency of the company staff in dealing with factoring, and, last but not least, continuing awareness activities.

Shaheen pointed out that his company targets expansion of its product, i.e. domestic factoring, which has several, huge investment potentials inside the Egyptian economy, especially for SMEs. He added that most factoring companies all over the world rely to a great extent on domestic factoring (acquiring more than 80% of volume of factoring worldwide whereas international factoring has a share of 13% only, with a value estimated at 175 b Euros out of a total of 1.3 trillion Euros (which is the volume of factoring worldwide).

Then, he spoke about benefits of domestic factoring, i.e. a proper financial tool suiting SMEs to have access to immediate finance to fund deferred payment invoices as the factoring company provides finance up to 90% of the purchased receivables and commercial papers, thus providing instantaneous liquidity to customers and converting their sales on credit terms to cash sales, which reflects positively on increasing and doubling turnover of production, and providing easy access to finance against invoices and commercial papers which cannot secure bank finance.

In addition, it saves the customer the hasstle of collection from clients by providing the services of management and collection as the factoring company collects invoices and commercial papers from purchasers when due. This helps small companies to focus fully on growing their businesses where finance is related to the volume of sales while the factoring company undertakes collection of invoices when due. He pointed out that his company cooperates with companies with sales no less than L.E 12millionwithout considering the company capital as a condition precedent for providing finance. It also saves big companies the trouble of collection and dealing with more than one entity to collect amounts due from others.

The second focus targeted by Egypt Factors is expanding purchase factoring, or what is called "suppliers finance program". This package, he explained, is suitable for SMEs with good financial performance and relying on sales on credit terms. The factoring company pays the invoices immediately on behalf of such companies to the domestic and international customers of the company provided the buyer undertakes to pay the invoice to the factoring company when due, thus serving importers without the need to initiate the process of documentary credits or negotiation with their foreign suppliers. The new product, which has been lately introduced in the market, is enjoying rising popularity among companies and is helping them purchase production inputs both from local as well as foreign sources as it is difficult to have access to bank financing or to bear costs of documentary credits.

On the other hand, Shaheen stated that his company is currently focusing on promoting the principle of "thinking about suppliers" by encouraging cooperation among large companies and promoting them to help small companies grow their businesses, and ensuring that the business of SME owners/ suppliers who conduct their businesses on the basis of open account terms continue to thrive. How? By concluding an agreement with the buyer to factor his purchases and make an immediate payment to the supplier, thus enabling the latter to have access to continue his sales and grow his business into a large economic entity.

The third focus, as the general manager pointed out, is continuation of campaigns for educating businessmen on the importance of factoring by using various mechanisms such as the media and newspapers (which have lately begun to embrace factoring, realizing its significance and working on raising awareness about its benefits); and holding meetings and seminars with businessmen associations. The latest gathering in this regard was held at the Egyptian Businessmen Association which launched the idea of developing a guidebook for educating SMEs about available finance sources; and cooperation with specialized exports councils in various sectors, investors associations in Sixth-of-October and al-Obour, and chambers of commerce.

He also asserted that the company was seeking expansion of its client base, and diversifying outreach approaches, either through cooperation with banks, especially the CIB, one of the key contributors to Egypt Factors with a share of 40%, and utilizing its widespread network of its branches nationwide, in addition to benefiting from its specialized management such as business banking management, which focuses on developing the business of its customers and acquainting them with available financial tools.

He stated that Egypt Factors is currently negotiation with some entities to conclude partnership agreements with some banks to provide factoring services to their open account customers by collecting amounts due, guaranteeing credit in addition to considering negotiation to expand relations with a number of companies.

Shaheen spoke highly of cooperation with a number of companies such as ECGC. The scope of this cooperation is divided into two categories: I) guaranteeing a number of customers and companies within certain percentages of finance available for them., which boosts confidence in the customer and expand providing him with facilities; II) serving ECGC customers who are in need of factoring services. He also commended the benefits and gains of this partnership with the Lebanese risk insurance company (LCI), the 3rd largest insurance company in the world, which cooperated with Egypt Factors in covering risks of customers and purchasers.

The fourth focus point as highlighted by Egypt Factors general manager was developing an integrated training plan for a large number of the company staff to be trained in factoring, either through providing training courses in Dubai and Malta, or getting a diploma certificate in factoring from the FCI, and recruiting a number of factoring experts in FIM Bank in Malta, one of the key contributors to the company with a share of 40% to train staff in using factoring tools.

Regarding the entry of new competitors into the factoring business with Egypt Factors considered the only specialized company to deliver factoring services and products, Shaheen welcomed the new players, pointing out several benefits expected with the coming of financial institutions affiliated to large banks including revitalizing the factoring market, raising awareness of its existence, broadening the client base and serving a larger number of companies, thus enhancing growth potentials (estimated at $110milliononly in 2009). He stressed the vital role of new companies to play in the national economy as compared to other countries such as the United Arab Emirates where the volume of factoring was 2 b Euros in 2008. In Tunisia, factoring turnover was $250millionEuros, and in Turkey, $ 18 b Euros.

Egypt Factors is considered the first licensed financial institutional in Egypt to practice factoring services. Both the CIB and FIM Bank have a 40% share each, and the IFC, an international organization affiliated to the World Bank, 20%. It provides an integrated package of factoring services, top of which is the finance service where 90% of purchased receivables and commercial papers is paid in advance, thus providing instant cash to customers, turning their sales on terms to cash sales and increasing the turnover rate of production to the double. In addition, there are services of management and collection where invoices and commercial papers are collected from buyers when due. There is also the service of protection against doubtful debts where we guarantee payment of the covered invoices for each buyer and settle outstanding invoices shortly after they fall due.

Packaging and wrapping on top of Egypt Factors' portfolio by 21% in January 2010

Ahmed Shaheen, the general manager of Egypt Factors, pointed out the diversity of sectors benefiting from the factoring services including packaging and wrapping, furnishings, ready-made clothes, and production inputs. The first sector noting that the former came first with a 21% share of the company's portfolio during January 2010 while the home furnishings and foodstuffs came out second with a share of 16% each.

The textiles and ready-made clothes ranked fourth, with a 13% share of the company's portfolio during the same period. The chemicals sector followed closely (12%), then the industrial inputs and chemicals (6% each). Furniture ranked 8th (4%), then vehicles feeding industries (3%), and other sectors (2%).

Shaheen explained that the general ranking of sectors forming the credit portfolio of the company reflects the vital role played by the factoring business in serving SMEs which represent 80% of total customers of the company, pointing out that top on the list of sectors benefiting from such services is the packaging and wrapping industry consisting mostly of SMEs which serve and supply their production to large companies on deferred payment terms and open account system. Accordingly, they need the domestic factoring product which provides instant payment for their invoices to buy production inputs to continue the production process.

He added that the foodstuff, which has a share of 16% of total factoring portfolio of the company, is the No. 1 user of the domestic factoring business, especially those falling under the category of small and medium companies supplying foodstuffs to chains of restaurants, hotels and hypermarkets using the open account and deferred payment terms systems. In such case, the factoring company provides instant payment of the value of the invoice, thus ensuring finance for their outstanding amounts to provide production inputs.

The home furnishings and textiles sectors, he noted, need to a great extent the export factoring product as they deal with the outside world through exporting their products or importing production inputs. It provides finance for imported inputs while the factoring company collects the value of their exports and provides protection against risks of non-payment by customers.

Shaheen pointed out that the ranking of sectors vis-à-vis the company's portfolio differs from one month to another according to the factoring transactions performed during this period, expecting the occurrence of change soon in the factoring portfolio given the potential of entry of other sectors to benefit from the new activity, on top of which comes electric inputs sectors and information technology.