Kadin promotes use of factoring for exports
Kadin promotes use of factoring for exports
JAKARTA (JP): The Indonesian Chamber of Commerce and Industry (Kadin) and the Indonesian Factoring Association will jointly promote the use of factoring services to support export activities.
Kadin chairman Aburizal Bakrie said yesterday that the chamber would soon establish a team to introduce factoring services in the provinces.
"For the first stage, factoring services will be directed to small and medium-scale companies," Aburizal told a factoring workshop.
The use of factoring services is not only more efficient and less costly for small and medium-scale companies but also more secure, especially for inexperienced exporters, said Aburizal, who is also chairman of the diversified Bakrie Group.
Factoring, the short-term financing facility from the non- recourse sale of accounts to a third party, is still new to most Indonesian exporters, he said. "This is the reason why we have to aggressively campaign for the use of such services," he added.
Unlike in Indonesia, the factoring facility has been very popular in neighboring countries. In Malaysia and Singapore, for example, around 30 percent of export settlements are supported by the factoring facility.
"The factoring facility in Thailand is much more popular, backing up more than 70 percent of its export settlements," he added.
The workshop, jointly organized by Kadin and the factoring association, was attended by more than 200 business executives, with speakers including Erric Giffo, the international factoring manager of the Paris-based Factorance Heller, Bernhard Arnebold, the international marketing manager of Germany's Deutsche Factoring Bank, and Philipp Cheng, the relationship manager of the Hong Kong and Shanghai Banking Corp. Ltd.
Giffo said that letters of credit (L/C) are still the most used payment facility to secure exports.
Flexibility
The L/C facility, however, still lacks flexibility in which delays in its processing due to discrepancies often result in losses to both buyers and sellers, he said.
In addition, he said, the L/C facility, which is transaction oriented, can be very time consuming and cumbersome administratively.
"This is certainly not suitable for businesses involving relatively small, repetitive transactions and especially where fast delivery schedules are required," he explained.
Giffo outlined a number of benefits which can be gained by small and medium-scale companies when using the factoring facility.
One of the benefits is 100 percent credit protection. Under the export factoring arrangement, the factor will pay exporters in the event that importers or customers fail to make their payments.
The second benefit is guaranteed payment, where 90 days after the due date of the invoice, the factor will pay the exporter irrespective of whether the customers or importers have paid.
The other benefit is an immediate cash advance. Under the factoring arrangement, the cash advance of up to 90 percent of the invoice value will be made to exporters upon shipment of the goods.(hen)