Factoring in Thailand

 

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.