Bangkok, 2003

Senior executives from the receivables finance industry in Asia, representing 30 organisations from 14 countries, met at the beautifully appointed Oriental Hotel in Bangkok to share their views and analyses of the industry and their strategies for meeting the challenges facing factoring in the region. The event, from 17 to 19 September, was organised in association with Factors Chain International (FCI) and the International Factors Group (IFG).

Complementing the conference was an exhibition featuring the latest service offerings from Dancerace plc, HPD Software and ICICI Infotech.

"At just over ¥80 billion a year turnover, Australia and Asia accounts for a little under 10% of the total factoring turnover in the world", observed Michael Bickers, managing director of BCR Publishing Ltd. "However, in terms of future growth, the potential is enormous. Everyone instinctively looks to China as the 'sleeping giant', and rightly so, but there is no doubt in my mind that other countries in the region have the economies and business infrastructure conducive to producing startling growth too. There is, nevertheless, a lot to do to realise this potential and I am pleased that the conferences BCR put on help to focus the minds of practitioners, legislators, industry advisors and intermediaries on shaping the future of factoring."

On the evening before the official start of the conference, attendees made new contacts and renewed old friendships at the Welcome Reception whilst enjoying drinks and canapés served by the attentive Oriental Hotel staff.

Veena Mankar, managing director of Global Trade Finance India, chaired the first day, introducing the first speaker, Jeroen Kohnstamm, secretary general of Factors Chain International.

Jeroen provided an overview of his organisation and his members' distribution around the world and the global distribution of factoring turnover by country and region. He then presented a personal view of what he expected of Asia-Pacific factoring in the short- and medium-term, with an analysis of the major markets in the region and a review of those markets that are failing to grow satisfactorily. He gave his views as to why some markets were succeeding and others failing. Jeroen reserved his detailed views on China, representing the greatest potential, until the Panel Session later in the conference.

Puntrika Baingern, managing director of Kasikorn Factoring in Thailand and the secretary general of the Thai Factors Association, followed with an overview of the Thai factoring industry, how it started and has developed and where it is now. Puntrika followed this with a detailed analysis of how factoring companies can effectively compete with other finance companies and banks by providing an alternative source of working capital in an increasingly crowded market.

After the morning coffee break, Bart Pattyn, regional managing director of Coface Group South Asia-Pacific, analysed how factors could advance more against a portfolio of invoices by assessing and hedging or syndicating the risk. He went on to explain some alternative methods for factors to reduce the cost of raising finance to fund their activities and the relative advantages of each proposition. Bart's clear explanation of a possible mechanism for securitising a portfolio of receivables prompted an interesting discussion on how the interests of the factor's clients could be protected in the event that the factor failed. Bart concluded his presentation with a summary of some alternatives to factoring.

Silas Berry, managing director valuation and consulting Asia, Henry Butcher GoIndustry presented a review of why asset-based lending in the Asia-Pacific region has struggled to fulfil its promise, where in the region it works well and where it lags behind and what is needed to kick-start this valuable source of business finance. He finished with two case studies (Thailand and Indonesia) that illustrated past problems and the challenges ahead.

After lunch on this first day, Doug Collins, vice president trade credit, AIG SE Asia assessed the opportunities for factors and credit insurers to work more closely together. Doug explained that, while competing for the same customers in certain circumstances, credit insurers provided contingent funding, paying out in the event of an insured loss, whereas factors provided 'real time' funding to the seller. Depending on the motivation of an exporter or seller, either factoring or credit insurance can be the right answer. He went on to say that the principal role of a credit insurer, the assumption of buyer payment risk, offers factors several potential benefits. These include; protecting the factor's balance sheet and profits from the effect of credit losses, using trade credit insurance as "capital" in support of a factor's business development, enhancing a factor's own liquidity, and even facilitating the sale of "credit protection" to a factor's customers as a stand-alone product to enhance customer retention. A factor can use trade credit insurance to leverage its in-house credit expertise to grow and manage risk.

Fenella Barnard, business development director, Dancerace plc, discussed the implications of the Internet and rapidly developing B2B e-business on the activities of factors, offering unrivalled opportunities to streamline factoring operations and achieve significant cost reductions. Fenella went on to examine how the move away from paper to electronically captured sales ledger data, together with modern technological techniques in data shadowing, can afford the security of full factoring to invoice discounting and self-administered factoring arrangements.

Client failures and frauds are always relevant issues high on the list of concerns for factors, and Fenella touched on the latest developments in risk modelling and management tools.

Fenella rounded off by examining how modern telecommunications have allowed factors to outsource their information technology operations to professional hosting companies, thereby simplifying the provision of hardware, security and disaster recovery, minimising cost and, together with the power of the Internet, opening up the possibility of remote operations overseas being smaller and more cost effective.

Following on from the afternoon coffee break, Chief Judge Thammanoon Phitayaporn of the Thai Office of the Judiciary, gave an eagerly awaited discourse on work underway to produce new legislation in Thailand, in line with the draft UNCITRAL legislative guide, to update Thai law with respect to secured transactions. The Judge identified the objectives of the new secured transaction law as removing the obstacles to secured credit, encouraging business finance through improving the cost and availability of credit and promoting international trade and economic development. He then reviewed the existing law and analysed the problems it caused and described the changes to the law that were being worked on to rectify this situation.

One of the most popular features of BCR's receivables finance conferences is the informal roundtable discussion groups' session. Attendees selected a subject from a short list including tackling fraud, harmonisation in cross-border receivables management, technology and profit, credit insurers and factors - friends or foes, surviving in crowded markets and asset-based lending. Each roundtable had an experienced and knowledgeable facilitator to ensure a valuable and lively discussion ensued. Predictably, sustained by a glass or two of chilled bubbly, this session ran a little over schedule but was the last of the first day.

Jeroen Kohnstamm, secretary general of Factors Chain International, chaired the second day of the conference.

Veena Mankar, managing director of Global Trade Finance India, presented her strategy for factors to enjoy rapid expansion in fast growing emerging markets. She drew on her personal experience of recently starting up a factoring business in India and constructing and executing a successful growth plan.

Veena focused on how factors can compete in large geographic markets where banks were well established as an accepted source of finance, full service factoring was unfamiliar and misunderstood, finance was key to the service offering and factors were seen as direct competitors to the banking industry.

She suggested a strategy built around client acquisition and retention, strategic partnerships and risk management in an environment with little reliable credit analysis information. Key to her strategy was careful market segmentation with an iterative segment performance analysis, using selected partners to manage resource expenditure by outsourcing non-core activities and expand perceived service offerings to increase competitiveness.

Philip Cheng, senior factoring manager for Asia-Pacific, HSBC, explained how to benefit from understanding the differences between Asian and European factors and markets. He analysed the differences in terms of current market size, market segments, providers and the split between domestic and international factoring and explained the reasons for these differences. Philip then explored the reasons for the rapidly growing demand for receivables finance and the obstacles that need to be overcome to allow the full potential of the region to be realised.

After the morning coffee break, Jan Becher, secretary general of the International Factors Group (IFG), reminded the conference of the history of the development of the two international factoring organisations that he and Jeroen Kohnstamm represented and the reasons for their separate evolution. He then went on to outline how he saw the IFG developing whilst still promoting and supporting the established and successful two-factor system. Specifically, he presented his vision of the principal responsibilities of associations in general, being to preserve, protect and promote the industry and practitioners interests and to encourage professional development and fair competition.

Jan pointed out that the receivables finance industry faced a number of challenges from issues such as the European Union and its regulations, UNCITRAL, Basel II and money laundering requirements. Other industries, such as banking and the credit insurers, faced similar generic challenges and that associations from these industries could help to deal with these challenges on a collective basis. This would require constant monitoring, lobbying and careful follow up on the implementation and amendment of regulations and guidelines through an effective alliance.

Undetected fraud always damages a factor and can result in major loss, so it is always a popular subject for discussion. Robert Weekes, partner in finance law, Hammonds, presented an insightful and sometimes amusing account of some of the latest methods employed by the dishonest to deprive factors of their profits.

Robert reminded the conference of the real cost of fraud, going beyond monetary loss to include damaged reputation, diverted management attention, impaired staff morale and mutual trust and possibly the loss of jobs. He went on to describe how the nature of fraud in the receivables finance industry has changed in the last dozen years, with clever felons using technology and a variety of audacious techniques to perpetrate their crimes. He emphasised that, despite these developments, the old rules still apply; know and understand your client and his business, carefully examine a client's factoring 'history', keep client relationships on a professional level and at arms length, do not accept excuses and audit well and often.

Robert gave examples of the lack of serious penalties to deter fraud and concluded with a comprehensive and practical guide to identifying suspect situations and avoiding fraud.

Greg Charlwood, managing director of Bibby Financial Services Australia, was scheduled to speak on the need for factors to understand and appreciate the potential impact of legislative change and how a strong and vigilant factoring association is necessary to protect the interests of the industry. Unfortunately, Greg was indisposed and his colleague, Matthew Erwin, business development manager, kindly stood in for him at the last moment.

Matthew explained Greg's experiences, when setting up factoring operations in New Zealand, of the Personal Property Security Act and how this had been allowed to go into law, to the detriment of the interests of the factoring industry, because of the lack of an association lobbying to protect factors interests. Subsequently, New Zealand factors joined the Institute for Factors and Discounters of Australia (IFDA) and that body worked to successfully regain the status quo.

In contrast, Matthew related the example of how the IFDA had worked with government officials in Australia during the introduction of the Goods and Services Tax (GST) to ensure the factoring industry was aware of this important legislation and was in a position to take full advantage by helping Australian businesses remit GST to the government prior to collecting from their customers through the provision of factoring services.

The last formal session of the conference was a panel session, facilitated by Jeroen Kohnstamm and Philip Cheng, discussing the enormous potential of China and exploring some of the challenges that need to be overcome to realise and fully exploit this potential. The discussion was lively, fuelled by searching questions from the floor and insightful and informative responses from the panel.

Michael Bickers wound up the conference by thanking all those who had contributed to making the event such a success, and particularly the speakers who had made such a thought provoking and informative programme. Michael went on to say that preliminary plans were in place to hold the 2004 Receivables Finance International Asia-Pacific event in Shanghai in September and that firm arrangements would be announced shortly.

'Excellent organisation, I came away from the conference having benefited a lot from the presentations and the opportunity to network with leaders from the industry'

Veena Mankar, managing director Global Trade Finance, India