Factoring is a financial transaction where a business sells its accounts receivable to a third party called a factor. In factoring, the factor maintains responsibility for the sales ledger, payment chasing, and invoice processing. Discounting is similar but the business retains more responsibility. Receivables finance in Australia has grown significantly from $4B in 1996 to $63B in 2012, though it declined in 2009-2010 after rapid 20%+ growth. The industry was once dominated by non-banks but now includes domestic and international banks as well as specialist providers.

2.  Factoring is a financial transaction in
which a business sells its ‘receivables’ to
a third party, called the factor.
 Accounts receivable are a legally
enforceable claim for payment to a
business by its customer/ clients for
goods supplied and/or services rendered
in execution of the customer’s order.

3.  In Factoring, the Factor Company
maintains the responsibility for the sales
ledger, payment chasing and invoice
processing.
 In Discounting, the Company maintains
the responsibility for the sales ledger,
payment chasing and invoice
processing.

4.  GDP growth is expected to be around 2½
per cent over 2013 before picking up to just
under 3 per cent over 2014.
 Mining investment is expected to peak,
both fiscal consolidation and the
persistently high level of the Australian dollar
will weigh on growth.
 Year-ended underlying inflation has been
around 2¼ per cent.
 The rate of underlying inflation is expected
to pick up a little to around 2½ per cent

5.  Receivables finance turnover in Australia in
2012 was $A63 billion. This compares to $A4
billion in 1996 and $A18 billion in 2002.
 Until 2008, growth rates were of 20 percent
or more.
 For the first time, there was a decline in total
new business - in both 2009 and 2010.
 This turned around in 2011 when receivables
finance turnover increased to $61 billion,
and then $63 billion in 2012.

7.  In the 1990’s the Industry was dominated by
non-bank participants occupying niche
markets.
 As of now, there are broad players in the
Market:
a. Domestic Banks,
b. International banks,
c. International and local specialist
receivables finance providers
They mainly operate on a national basis, and
some in limited geographical locations.

8.  Discounting is generally more suitable to
larger business with appropriate systems
and a proven track record.
 Factoring may be more suitable to
clients where the factor has a much
greater involvement in managing its
debtor security.

10.  Since 1995 discounting has grown from
64 percent to 91 percent of the market –
peaking at 95% in 2008.
 The market has experienced a steady
growth experienced from 1995 to 2006, a
levelling out in and then a relatively
significant rise in the last two years.

12.  Competition in the receivables finance
market is strong:
a. Many clients utilising brokers to find the
best deals.
b. Clients not utilising brokers will typically
shop around to obtain the best pricing
and structure for their needs.
As a result, the sector competes on both a
pricing and risk basis.

13.  The Personal Properties Security Act 2009,
which came into effect in January 2012,
has multiple effects on disclosure norms
for businesses involved in Factoring
 Complex rules about the requirements
for a business to inform suppliers of these
arrangements.
 Refers to payment periods and terms,
depending on the structure of your
business.

14.  The client base is expanding beyond the SME
sector to include
a. medium sized corporates
b. smaller listed companies,
with annual turnover in excess of $A500 million.
This is altering the risk/return equation as:
a. Clients are having an increased capability to
manage their debtors as well as their
underlying businesses,
b. The receivables finance will become more
homogenised.

15. a. It will be increasingly offered as part of a
broader financial package, for
example, in conjunction with trade
finance and inventory finance.
 The Factoring Market will diversify into
other areas such as management
buyouts, acquisitions or expansion into
new product or business lines.