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)