FACTORING IN SINGAPORE

Sonam Jambhulkar
874
National Law University

Factoring
Factoring is an alternative form of financing it helps
in protection against losses on receivables. Factoring
is a financial transaction in which a business sells its
accounts receivable. Factoring is a financial
transaction in which a business sells its receivables
to a third party, called the factor.
Accounts receivable are a legally enforceable claim
for payment to a business by its customer/ clients
for goods supplied and/or services rendered in
execution of the customers order
It involves the factor buying outstanding
invoices/claims/receivables from the factoring client
(usually a company/enterprise) on an ongoing basis.

 A pre-defined percentage is kept with the

factor, as security deposit. i.e. invoices to a
third party, called a factor, at a discount.
The sale of the receivables essentially transfers
ownership of the receivables to the factor,
indicating the factor obtains all of the rights
associated with the receivables.
The Factor checks the ongoing creditworthiness
of the customer and takes under an agreed limit,
the full risk of default, before signing the
contract.

 In factoring a company sells its receivables from

deliveries of goods and services to its customers
continuously to a factoring institution
And hence the company maintains immediate liquidity
directly from his debts. And with this liquidity
obtained by factoring company may also procure-use
income in purchasing because of different discounts
and special rates.
By way of factoring the company outsources its claims
and management provides administrative relief. The
sale of receivables reduces the balance and leads to
better balance sheet ratios.

Factoring in Singapore
The factoring market of Singapore shows stable
growth due to a positive business climate, a rising
acceptance of factoring and a still high market
potential.
The factoring market in Singapore has diversified
client and debtor industries, and provide different
forms of factoring which can be offered.
Factoring services are provided according to the
individual needs and wishes of the clients, such as
o amount to be financed,
o the maturity and collection period,
o the risk mitigation,
o the transfer of the debt management and,
o other services offered by the factoring company.

 Most of the factoring customers include

o trade and commission trade,
o metal processing,
o food, beverage, manufacturing of machined products,
o engineering, manufacturing, production of chemical
products,
o transport equipment,
o electronics / electronic devices and paper, publishing
and printing .

Also wide range of the middle class of Singapore has

potential to use factoring as an alternative and
attractive form of business financing. And it is
visible that through the years passing by many
middle classes have preferred to finance through
factoring.

Eligibility for factoring services

Singapore registered entity
Company must be in operation for the last 2
years
Trades domestically on credit terms

Factoring Institutions

DBS BANK LTD-EB-FACTORING

GE Commercial Financing (Singapore) Ltd
Global Merchant Funding Pvt Ltd
Hong Leong Finance Limited
HSBC RECEIVABLE FINANCE
IFS Capital Limited
Malayan Banking Berhad
OCBC Ltd
STANDARD CHARTERED BANK: Standard chartered
banks in Singapore has acquired all the SMEs in 2010
UNITED OVERSEAS BANK LIMITED

Factoring scenario in Singapore

Presently the factoring industry in Singapore is very
successful.
People are preferring to raise their finances through
factoring and different institutions are emerging to
provide factoring services. Hence factoring is very
much in demand. The number of factoring clients
has shown growth in the market in last few decades.
There has been almost 20% growth of clients in
factoring market.
Factoring in Singapore has finally been established
and embedded itself as an instrument to finance
means of production and safeguard against risks.

 According to different factoring Association in

Singapore, factoring adds to almost 4.87% of
financial market.

Growth in Factoring Market

Due to recession in last few years the market has
suffered a lot. The banks were skeptical about
providing factoring services to companies and
individuals.
The market was already down and if further the
services would have been provided then the banks
had threat of suffering lots of losses, due to downfall
in the financial market in all over the world.
Many countries were facing the same problem due
to recesson which had great impact on countrys
economy.

Growth in Factoring market

 Factoring is prevalent, often (but not always) on

a recourse basis, and can be for the purpose
of providing working capital, credit protection or
collection and management of receivables.
With 80% of global trade done on an open
account basis in Singapore, factoring delivers
benefits to exporters who wish to reduce
counterparty risk.
Exporters are able to offer more competitive
terms such as longer payment periods and
extended credit, without exposing themselves to
the risk of payment defaults.

 With factoring, the payment risk is transferred to

the factor (or the bank) when exporters sell their
invoices to them. The factor then collects the
invoices on the exporters behalf.
Corporations ranging from MNCs to SMEs use
factoring as a core part of their working capital
strategy and to manage more efficient supply chains.
According to FCI, total factoring volume in Asia
increased by over 219% from 2004 to 2010.
The key markets of factoring in Singapore ahs
registering growth of 200% and respectively, over
the same period.
Hence the forecast can be made that the present rate
of GDP can increase to 7% in next few decades due
to increase in factoring market of singapore.

Problems in Factoring Market in

Singapore
Companies do not prefer using factoring services when they

do not run any debt collection operations of their own.

Companies do not prefer using factoring services when they
wish to finance their expansion and growth on their own.
Companies do not prefer using factoring services when they
want to protect themselves against losses on receivables.
Companies do not prefer using factoring services when they
think that there is no need of such financial source and they
can rain money from other resources.
Many people are still apprehensive about the loss or ay other
suffering that can be caused to them.
Some factoring companies create a strong financial base but
do not get the potential customers.