Factoring is a financial service based on the sale of accounts receivable. It is experiencing a marked revival thanks to the development of more sophisticated legal and technical solutions. Factoring is particularly useful for providing SMEs with access to working capital. Pricing is usually based on the credit standing of the SME’s biggest customers and is thus insulated from the problems commonly associated with SME finance: information asymmetry and lack of appropriate security.
The EBRD has long promoted factoring through the activities of the Trade Facilitation Programme and through its investments in financial institutions. In order to help increase the use of this service, we developed a legal programme that aims to improve the sub-optimal legal and regulatory environment for factoring in the EBRD region.
Under the programme, the EBRD offers technical assistance for the creation of a facilitative legislative environment and an appropriately designed regulatory regime. It also seeks to support the development of local and/or regional reverse factoring programmes.
The below video highlights our work on factoring legal reform and a successfully completed project in Kosovo. It also provides great insight into a project's lifecycle.
Access to finance reform
How a project cycle works
2018 Factoring Survey in EBRD Countries of Operations
This 2018 survey showed that many of EBRD countries of operations have started working on or have already introduced specialised laws or specific provisions in general commercial legislation, in order to facilitate factoring operations. However, the development of factoring services and the range of available products differ from country to country, depending on the degree of market sophistication and on the existence of supportive legal provisions.
The survey examined (a) the regulation of factoring as a financial services industry, (b) factoring contracts and (c) other issues related to factoring such as tax, foreign exchange matters and remedies in case of late payments to creditors.
The survey shows a clear inclination towards regulation of factoring among EBRD countries of operation, with 26 out of 37 reviewed countries having a regulatory body supervising factoring companies in place. The survey also show that the majority of countries that do regulate factoring services do not impose capital adequacy requirements for factoring companies, with only eight being an exception to this. 21 of the 26 countries which have a regulated factoring industry require a specific license to start providing factoring services while in the other cases a simple registration in a designated register would suffice.