Factoring is a growing source of external financing for corporations and SMEs and allows high-risk suppliers to transfer their credit risk to their high-quality buyers. Factoring is particularly useful in countries with weak judicial enforcement and imperfect records of upholding seniority claims because receivables are sold, rather than collateralized, and factored receivables are not part of the estate of a bankrupt SME. Statistics show that factoring is more common in countries with greater economic development and growth and developed credit information bureaus.
In BiH, factoring is in its infancy, but it has the potential to bring important benefits to the BiH business community and contribute to an improved business environment. It could be one of the most flexible finance tools supporting trade and a driving force for further growth of the BiH economy. Recourse factoring is a technology that can mitigate the problem of the lack of transparency in business environments with weak information infrastructures, so long as only receivables from high-quality buyers are factored. Factoring allows faster circulation of funds and ensures the liquidity and solvency of the real economy. Introducing factoring, as a widely used financial service in BiH would provide a very welcome acceleration of the turnover of funds.
As factoring services are introduced, the factoring market size is expected to be around 0.4 % of GDP. In 2007, according to the Central Bank of BiH, the GDP of BiH was 21,641 million KM. This suggests that BiH could expect a factoring market of around 86 million KM (0.4% of GDP), even in the short term (1-2 years). In the medium term (3 - 5 years), the factoring market is expected to reach some 432 million KM (i.e. 2% of GDP), based on projected GDP growth.
Were BiH banks able to provide adequate private sector lending, including short-term credit lines, the need for factoring would probably be small. When it comes to introducing factoring as a new financial product in BiH, during this time of world financial crisis, financial institutions can either wait for a more stable time, before offering factoring services to the business community, or they can start to offer factoring as a new product, showing their clients that they are working in their best interests by helping them to secure their liquidity and solvency in such difficult times.
At present, the following companies provide factoring services in BiH:
IGA[e1] (BiH Izvozno kreditna agencija/BiH Export Credit Agency)
The IGA came into being in 1996 as an agency of the BiH Council of Ministers. The agency has implemented two projects in BiH: the Leveraged Insurance Facility for Trade project (providing non-commercial risk insurance to foreign companies and financial institutions with trade exposure in BiH) and the Support to Export Companies project (started in 1999, providing working capital loans to BiH exporters). In 2004, the Parliament of BiH passed the Export Credit Agency Law, creating an institutional framework for the IGA's work.
The IGA offers the following products: credit insurance (export, import and domestic), factoring, guarantees (performance, advance, retention, and tender), short-term loans and credit information. The IGA has gained significant experience in handling international market transactions and developed a company database to facilitate access to credit information. It offers consulting services in the areas of investment and international trade, as well as credit bureau services, to BiH and foreign companies.
Prvi faktor doo, Sarajevo[e2]
Prvi factor is the first Bosnian company to specialize in domestic and international factoring. It was established in 2006 by a factoring company Slovenia, Prvi faktor d.o.o. Ljubljana. Prvi faktor offers domestic and international factoring services and buy-offs of single claims from customers in BiH and abroad, as well as the securing of prudential information on companies.