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As long as home goods manufacturing continues to shift overseas, factoring firms need not worry about a shortage of import-factoring volume. During the past few years, and more recently due to the textiles and apparel quota lift, import factoring has grown by leaps and bounds.
Total global factoring volume in 2004 was nearly $1.2 trillion, a 22 percent jump from 2004, according to global factoring network Factors Chain International. International factoring has eclipsed this growth, increasing by more than 50 percent, according to Factors Chain.
“This [growth] illustrates that exporters and importers around the world are becoming more and more familiar with the advantages to be derived from a factoring arrangement: working-capital credit-risk protection and collection service for the exporter, while the importer benefits from buying on open-account terms without the need to open letters of credit or other payment terms, which have a restrictive character,” Factors Chain stated in a recent release.
Louis Barone, senior vice president and international manager with GMAC Commercial Finance, said import factoring, which represents about 15 percent of the company’s total business, is driven by manufacturing in China, Japan and Taiwan. China accounts for a large share of home furnishings sourcing, while Japan and Taiwan are “more high-tech hard goods” such as consumer electronics, Barone said.
GMAC Commercial Finance’s import-factoring business has grown by 20 percent “over the past few years” and will grow 15 to 20 percent per year over the “next few years,” Barone said. He attributed import-factoring growth in part to the quota lift: “Everyone saw a spike earlier this year because a lot of products came in earlier than normal — people were concerned about which categories would have [safeguard] quotas down the road.”
Mike Stanley, executive vice president of Rosenthal & Rosenthal, traces the growth of import factoring back more than 20 years, as domestic manufacturing diminished. He said that with the recent quota elimination, imports have surged. “But, this [quota lift] also comes with challenges. As safeguard quotas have been implemented, [importers] have had to rush goods in to maneuver around safeguards,” he added.
While CIT Commercial Services has keyed in on the main home furnishings manufacturing regions — China, India and Turkey — the mega-factor is looking beyond them to countries like Brazil for export factoring. “We have followed U.S. free-trade-pact regions and set up in those markets to assist U.S. exporters,” said Peter Mulroy, senior vice president and international manager at CIT.
U.S. firms are now building relationships with overseas factors and banks, and in some cases, establishing satellite offices abroad.
Rosenthal & Rosenthal has been establishing relationships with various Asian financial institutions and is a member of Factors Chain International, which provides it with access to global factors. Stanley said that international relationships “predominantly come from its U.S. suppliers looking for Asian sourcing.” The company is also considering setting up a correspondent office in Hong Kong or Shanghai to handle new and existing clients.
Sterling Factors opened an office in Hong Kong three years ago to “speed up documentation of letters of credit and also build relationships with other [international] financial institutions,” said John Lalota, president.
Language is not the only thing that has changed in an increasingly import-driven factoring market. International factories used to need letters of credit from importers to use as collateral security to obtain capital from banks, Stanley explained. “Now, as [overseas] factories are being built up to supersize factories, they have their own financing and regional banks have their own financing,” he said.
Barone said that GMAC opens letters of credit for its clients that import, but noted that this does not connote import factoring. “Import factoring is when we provide the credit guarantee [in the form of an open-account sale],” he added.
Buyers that were previously sourcing domestically are shifting abroad; they are “asking the seller [or manufacturer] to ship and not get paid 60 to 90 days after shipment,” Mulroy said. And since this new structure places the burden on overseas suppliers, the importer or buyer must have credit protection to operate.
Source: Written by Michael Rudnick – HFN The Weekly Newspaper for the Home Furnishing Network – 8/15/2005

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