One of the most difficult aspects of living in Thailand and trying to run a business is dealing with banks. The language of financial transaction is not always easy to understand in a second language. The cultural nuances of interaction within the formal setting of a bank can be hard to discern. You can quite easily leave your bank in Thailand, not quite understanding what has been said and agreed.
This is
where some assistance from a Thai person can be helpful. Patience is a must.
However, if you are in urgent need of cash to fund working capital for your
business the delays caused by persuading a Thai bank to loan you some money can
be frustrating.
One solution
is to use a factoring firm in Thailand. Thailand has a strong regulatory system
in place to deal with debt, risk management, securitisation and accounts
receivable factoring. There are now a growing number of Thai firms offering
factoring, reverse factoring and supply chain finance.
Factoring is
where a company sells its unpaid invoices to a factoring firm. They will
advance between 75% and 90% of the cash immediately to the company account. Once
an unpaid invoice has reached its maturity date, the sum involved is paid by
the debtor straight to the factoring firm. They take out their original
remittance and their fee (usually about 3%) and send the remaining sum to their
client.
The benefits
of invoice factoring are obvious. Accounts receivable form the collateral for the
cash advance, so equipment and property are not risked in the event of a debtor
not paying. With non-recourse factoring the factoring company will take on the
legal responsibility of recovering debt.
Another
advantage with factoring, is that a factoring facility comes with credit
control. This means they will analyse your customers and their paying habits.
They will flag potential invoices that they suspect might be risky. Credit
control effectively manages risk and helps a company avoid funding shortfalls.
A factoring
firm in Thailand is very different to obtuse banks. They can quickly approve a
factoring facility and make a payment. Factoring firms are customer facing
rather than banks that are focussed on regulatory and procedural issues.
Factoring in Construction
I haven’t
encountered anyone who has used factoring to pay building contractors in
Thailand. This will no doubt be because I mostly encounter people building
residential property rather than commercial property. However, the law allows
for factoring in construction.
To factor a
construction project a team of specialists is needed to check every stage of a
construction – completing the foundations, completing the ground level and
putting the roof on. Once a stage has cleared all its snags then money can be
released to suppliers and contractors using reverse factoring. In reverse
factoring it is the buyer that initiates factoring in order to facilitate fast
payments to suppliers. This is a vital financial tool in improving supply
chains. Cash is quickly released into the supply chain to make sure deliveries
happen on time, and no individual business is hit with liquidity issues.
Construction
is a key part of growing Thailand’s economy. New hotels provide new income. As
cities expand and the middle class grow new housing is needed. Rural areas in
Thailand need better infrastructure to connect with the growing economy.
All this
points to the growing adoption of factoring practices in Thailand, especially
in logistics and construction.
