Case study
In the year 2002 our potential Client asked Polfactor to help to find solution for its growing financial problem. The Client was a hardware distribution company actively operating on the Polish market, introducing new products and new brands. Products were imported from the Far East where advance payments were required. The number of its buyers had been constantly growing thus the amount of given credit as all buyers expected payment terms. The management of the Company began to face the problem of turnover capital shortage as the Far East suppliers were not willing to grant payment terms. Polfactor offered as a remedy for capital shortage a plain product – domestic recourse factoring as the cheapest and the least complex. The Client submitted 35 buyers, among them big retail nets and small dealers.
Taking into a consideration that total deductions of the submitted turnover were app. 7% we agreed to start cooperation with 75% of prepayment. During talks, it was also agreed that the Client should have a credit line of max. 2.500.000 PLN what gave him comfort in product supply management. Polfactor took care of receivables management: payments booking and vindication as well. Implementation of factoring enabled the Client to extend the number of Far East suppliers expecting advance payments and as a result improve supply safety. Domestic factoring line positively influenced the sale policy as well. The Client did not have to bother with burden of growing trade credit line amount as all new buyers could get expected payment terms.
In the year 2004 our Client began to search for foreign buyers in order to extend and diversify its sale. The product was innovative thus a lot of customers from abroad were interested in purchasing. Due to problems with reliable verifying of foreign buyers and barrier of different legal systems and business customs our Client faced high risk of insolvency. In this uncomfortable for the Client situation Polfactor offered a non-recourse export factoring which secured the Client with 100% taking over risk of insolvency. The Client decided to submit all foreign customers to Polfactor, which not only took over risk of insolvency but also provided financing and receivables management.
The turnover with the Polish and foreign buyers grew so Polfactor extended the credit line up to 3.500.000 PLN. Far East suppliers changed their attitude toward the Client and granted him a payment term. Our Client began to use factoring money to pay in advance in return for profitable discount. Factoring line partly changed its purpose: from the tool on which all supplies were dependant to the product which enabled to earn extra money. Export factoring partly secured our Client against foreign currency exchange rates looses as supplies and sale were in the same currency.
In the year 2006 our Client decided to secure its entire turnover so turned to Polfactor for assistance. As all foreign transactions were secured, Polfactor offered to change the domestic recourse factoring into domestic non-recourse with 85% risk cover.
At present our Client uses 2 factoring lines: domestic non-recourse line of 2.500.000 PLN and export non-recourse line of 1.000.000 PLN. Due to well spread portfolio of buyers the prepayment is 85%.
Summary of factoring benefits for the Client:
- New supply opportunities
- Improvement of receivables turnover
- Opportunity to meet buyers expectations as far as payment terms are concerned
- Opportunity to enter new markets without risk of insolvency
- Opportunity to win new buyers
- Opportunity to acquire discounts from supplier
- Transfers booking – time saving for book-keeping
- Monitoring of receivables