FACTORING MARKET IN AUSTRALIA

- Akarshi Jain- Roll no. – 858

- Semester V,- B.B.A, LL.B. (Hons.)

Introduction

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 customer’s order.

Difference between Factoring and Discounting

In Factoring, the Factor Company maintains the responsibility for the sales ledger, payment chasing and invoice processing.

In Discounting, the Company maintains the responsibility for the sales ledger, payment chasing and invoice processing.

General Economic Conditions

GDP growth is expected to be around 2½ per cent over 2013 before picking up to just under 3 per cent over 2014.

Mining investment is expected to peak, both fiscal consolidation and the persistently high level of the Australian dollar will weigh on growth.

Year-ended underlying inflation has been around 2¼ per cent.

The rate of underlying inflation is expected to pick up a little to around 2½ per cent

Receivable Finance Market Trends

Receivables finance turnover in Australia in 2012 was $A63 billion. This compares to $A4 billion in 1996 and $A18 billion in 2002.

Until 2008, growth rates were of 20 percent or more.

For the first time, there was a decline in total new business - in both 2009 and 2010.

This turned around in 2011 when receivables finance turnover increased to $61 billion, and then $63 billion in 2012.

Players in the Market

In the 1990’s the Industry was dominated by non-bank participants occupying niche markets.

As of now, there are broad players in the Market:

a. Domestic Banks, b. International banks, c. International and local specialist receivables

finance providers They mainly operate on a national basis, and some in limited geographical locations.

Discounting is generally more suitable to larger business with appropriate systems and a proven track record.

Factoring may be more suitable to clients where the factor has a much greater involvement in managing its debtor security.

Factoring Market Comparison

Since 1995 discounting has grown from 64 percent to 91 percent of the market – peaking at 95% in 2008.

The market has experienced a steady growth experienced from 1995 to 2006, a levelling out in and then a relatively significant rise in the last two years.

Competition in the Market

Competition in the receivables finance market is strong:

a. Many clients utilising brokers to find the best deals.

b. Clients not utilising brokers will typically shop around to obtain the best pricing and structure for their needs.

As a result, the sector competes on both a pricing and risk basis.

Legal Requirements: The Personal Properties Security Act

2009, which came into effect in January 2012, has multiple effects on disclosure norms for businesses involved in Factoring

Complex rules about the requirements for a business to inform suppliers of these arrangements.

Refers to payment periods and terms, depending on the structure of your business.

FUTURE TRENDS

The client base is expanding beyond the SME sector to include

a. medium sized corporates b. smaller listed companies,with annual turnover in excess of $A500 million. This is altering the risk/return equation as:c. Clients are having an increased capability to

manage their debtors as well as their underlying businesses,

d. The receivables finance will become more homogenised.

a. It will be increasingly offered as part of a broader financial package, for example, in conjunction with trade finance and inventory finance.

The Factoring Market will diversify into other areas such as management buyouts, acquisitions or expansion into new product or business lines.

THANK YOU!ANY QUESTIONS?