Al Mal Newspaper
Against the Backdrop of the Cascading Financial Crises,
Factoring Plays Eminent Role in Protecting Exporters
Wrote: Nashwa Abdel Wahab
Factoring activity currently faces various challenges that arise out of the worsening Greek debt crisis and the EU deteriorating trade conditions. Egyptian volume of exports to the EU countries has been remarkably decreased, which caused a real concern over the future of the newly growing industries in Egypt.
Nevertheless, a number of experts and factoring officials unanimously agreed that factoring activities would be slightly affected by the Greek crisis which caused a decrease in the Egyptian exports to Greece and EU countries, stating that factoring services play a vital role greatly protecting exporters from bad debts, properly evaluating the capital adequacy of customers and widely providing investment opportunities for opening new markets thus allowing customers to maintain their export volume and offset the economic turndown in the countries most affected by the economic crises.
Mr. Ahmed Shaheen, General Manager of “Egypt Factors”, stated that factoring activity would hardly be affected by the Greek crisis, indicating that the trade activity with Greece was gravely affected by the Greek debt crisis which caused a recession of Egyptian exports to Greece, but factoring share in the Egyptian exports to Greece is still limited, therefore there is no need to be in fear.
The General Manager of Egypt Factors also pointed out that the Greek crisis would have limited and indirect effect on the factoring activity; in two aspects. First, the factoring activity would face some problems and difficulty in covering the customers dealing with Greek companies which are affected by the Greek crisis, given the tough austerity and expense-rationalizing plans applied in Greece to reduce the aggravating financial problems; indicating that factoring services to those customers would face critical situations. Second, the improving and increasing demand by Egyptian exporters for factoring services so as to maintain their Greek customers and to better use the factoring management and collection services, given that Egypt Factors undertakes to collect invoices and commercial instruments from purchasers on their due dates and to provide bad debt protection services thus ensuring payment of covered invoices of each purchaser and settlement of unpaid invoices in a short period of time after their due dates, which enables exporters to positively evaluate the financial position of their foreign customers and properly decide whether or not to resume dealings with them.
Mr. Shaheen also stressed the vital role of Egypt Factors which is considered a value added to exporters in times of crises; indicating that the company thoroughly renders services to exporters, in terms of the well-rounded evaluations of financial positions of their customers in countries such as Greece as well as the integrated studies on the scope of impact of financial crises and the volume of potential risks they may encounter. He added that these services properly assist Egyptian investors, whether exporters or importers, who are given the opportunity to acquaint with the degree of risks encountered by their customers in such countries, to set strategic plans for sales to Greek companies and to know whether or not the financial positions of customers enable them to fulfill their financial obligations. He further pointed out that in case the credit studies carried out by Egypt Factors reveal risks or raise fears of the economic conditions of some customers, the company immediately notifies the exporters on the volume of such risks, thus allowing exporters to review their customer lists and start to take the other investment opportunities provided by the factoring company’s branches spread in various countries all over the world.
The General Manager of Egypt Factors also stressed the fact that "factoring" in Egypt is considered a newly introduced activity to the economy; therefore no fears should be raised as to the impact of such crises, indicating that the company in upcoming period shall focus on investors' awareness of the importance of factoring services.
Meanwhile, Mr. Alaa Gouda, a board member of Export Credit Guarantee Company Of Egypt (ECGE), stated that it is still early to judge the impact of Greek crisis and its consequences on the Global markets in general and the local market in particular, indicating that we should first study the crises suffered by all countries all over the world to learn the total volume of risks.
He added that all projections indicate that a reduction of sale, purchase and import volumes would take place in Greece, as compared to the last year, because of the exacerbated Greek debt crisis and the other worsening economic conditions, i.e., the lay-offs, unrest and austerity policy, which will certainly impact the local economy, including the factoring services. The recession of Egyptian exports to Greece would lead to the fall back of exports factoring as well as reduction of the number of exporters using such service.
Mr. Gouda further pointed out that Egyptian exporters are required to undertake procedures and offer facilities supporting importers in the countries suffering crises and in the surrounding areas; so as to avoid the grave reduction of the exports under crises and to increase the business volume. Facilities may include the payment facilities which enable importers to resume dealings and allow exporters to better use factoring services and ECGE exports guarantees that ensure market sustainability and continuity of business. He added that exporters are required to find other importers in other countries and attract them, using new facilities and privileges, so as to replace the importers who suffer crises.
As for the impact of Greek crisis and the deteriorating economic conditions of some Euro-zone countries on the Egyptian exports to Europe, Mr. Gouda confirmed that the general scene reflected a clearly passive economic performance of EU countries during the period from 2008 to 2009 as a result of the Global Financial Crisis, as compared to the pre-crisis period, pointing out that such performance would be accompanied by a recession of the global trade volume with projections of resumed fallbacks in near future.
Factoring provides integrated group of services, particularly the finance service whereby a rate of up to 90% of debit accounts and purchased commercial instruments is paid in advance, which provides immediate liquidity to customers whose post-dated sales are transformed into immediate cash sales. This is in addition to the other management and collection services whereby invoices and commercial instruments are collected from purchasers on their maturity dates. The factoring company further provides bad debts protection services whereby the amounts covered by each purchaser are surely paid up and the unpaid invoices are settled in a short period of time after their maturity dates.