What is Factoring?

Description

Factoring is a financial solution in which unpaid long- or short-term recievables resulted from any trade of goods and/or services based on invoices and/or officially equal documents are turned into cash by assigning them to a factoring company.

In this context, factoring is a financing method by which the receivables of the companies resulted from long- or short-term sales are bought by the factoring companies.

Factoring system is one of the most important methods that gives motion to receivables and enables the cash flow so that provides positive cash flow which is one of the most significant requirements of a business. With the agreements made with factoring organizations, companies gain a secure, fast, and effective collection and cash flow management. Assigning their receivables to factoring organizations, companies thus are able to find financing easier and faster, and become advantageous in terms of workforce and time.

In simple words, factoring procedures provide funding for yoru to perform your fast finance obligations and help you to grow successfully. If there is shortage of cash,it would be difficult for the business to grow. Factoring turns your sale into cash and by doing so enables yo to grow healthly. In this point, factoring services are an effective financial option for all interpreneurs, businesses, and companies who operate in long- and short-term sales.

Background

Roots of factoring procedures reach back to Phonecians, and even to antic Rome. In that era people who called factor provided various services such as selling and storing of the goods of the merchants. Also, it's a known fact that in 4000 BC Mesopotamians merchants had turned their undue receivables into cash thus ensured the receivables to be paid. The term of Factoring was first coined by the German bankers. These bankers called themselves "factor", and their representatives "factorien". These representatives had worked as agents and undertaken the post of merchant assistant. "Factoring houses" established in Britain during 17th century have become the foundation of modern factoring services. In order to help in the financing of wool trade between USA and Britain, a representative factoring house was established in North America. With this representative, in addition to functions such as storing, selling, and shipping some other services such as collection customer information had started to be given and thus present day factoring activities were started.

Registered factoring companies started to be established in 1960s. Showing very slow growth until 1970s, the sector has become a method that the companies who were trying to go globally increasingly used particularly after the economic crisis of 1973, and today many large banks in the developed countries have at least one factoring company affiliate. Factoring is considered a modern financing method by all companies across the world. There is a totally developed factoring industry in over 50 countries and total business volume performed by them is over USD$630MM.

Due to various reasons such as applying factoring services to new industries and regions, rapid developments in IT sector, merger activities between independent factoring entities an major banks, increased competition among the factoring organizations, world's factoring volume is growing fast in positive way.

Factoring in Turkey

Development of the factoring in Turkey shows parallelism with outward-oriented economic policies and export-based industrialization strategies after 1980. Increased competition amon the banks as a result of significant changes and developments in the banking system as well as international banks have branches in Turkey, and increased inclination of the banks towards to specialized banking, banks now offer possibilities to their customers to benefit from financing techniques such as consumer credits, credit cards, leasing, factoring, and forfeiting. The term of "factoring" was first used in the banking terminology of our country in 1983 with the "Delegated Legislation About Money lending Activities". Third Article of this legislation defines the factoring as "Assignment and undertaking of collection of the receivables resulted and7or to be resulted from the sales of goods and services, and provide finance in return", and calls the companies established to operate in this field as "factoring companies". Factoring has started in Turkey in 1988 and first authorized factoring company has started its operation in 1990. Although there weren't any official factoring activities until 1990, market players largely known as loan-sharks have met the cach needs of the companies by a method known among the people "check cashing". For a long time concepts of loan-shark, pawn broker, check cashing were unfortunately identified with factoring process in the mind of the community. It should be remembered that those unofficial procedures cost significant amount of tax losses to our economy.

Factoring companies operated subject to permission and approval of Undersecretariat of Treasury and Foreign Trade until 01/01/2006, and since that date they are subjected to the permission, approval and supervision of Banking Regulation and Supervision Agency (BRSA). With this development factoring sector and its companies have gained the dignity, prestige, and discipline they deserve.

Though factoring is a relatively new financing model, it showed a fast paced development in our country and has become an indispensible instrument in the recent years. Assignments of the receivables from long- or short-term sales of any goods and services are getting increasingly popular. Companies and sectors who make benefit of factoring services most in our country are SMEs and textile, iron, steel, food, automotive, machinery and fittings, spare parts, office machinery, trade, health and cleaning sectors and publishing sector respectively. Important part of factoring services in our country (75%) consists of domestic factoring while remaining part consist of a combination of export (23%) and import (2%) factoring.

MARKET DATA

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  • Free Market
  • USD Buy | Sell
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  • GBR Buy | Sell
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