TITLE : FACTORING AND FINANCE.*

PREFACE

When factoring was introduced into the United Kingdom in the early 1960s it was almost entirely unknown as a management and financial tool. This was so in every industrialized country except the United States, the home of modern factoring. Even in America factoring was, and still is, concentrated heavily in the textile and associated industries and outside these areas many businessmen and financial advisors were, and are, ignorant of the exact role of the modern factor. In the United Kingdom factoring had become an accepted technique by the mid 1970s, by which time factored sales were running at an annual rate in excess of œ300 million with considerable scope for expansion. All the major clearing banks, among others, had factoring companies or divisions through which factoring facilities could be offered to their wide range of industrial and commercial clients.

The increasing involvement of banks in factoring, in the United Kingdom and America, and indeed throughout the industrialized world, has helped to put factoring on the industrial and commercial map; and yet we have found that the marketing of factoring from inside as well as outside the banking sector, or by companies in which a major bank has a substantial interest, has exacerbated the very misconceptions that a wider acceptance of factoring should dispel. In particular, the association of factoring with banking leads it to be viewed solely, and incorrectly, from a financial viewpoint and as an alternative 'banking facilitys managed according to banking criteria. In consequence there is a disproportionate lack of emphasis upon the administrative and credit control services offered by the factor and his attitude towards facilities utilized by clients. We believe this imbalance should be corrected and that a realistic and reasoned appraisal of the administrative services offered by the factor, and his proper place in the financial plan of the individual company, should be available to the business and financial community. It is for this reason that we have written this book and decided upon its scope and emphasis.

At present there are very few books on factoring available to the public written by executives operating within the industry. While many articles have been written in the financial and commercial press, we do not believe these are adequate for those who may wish to use a factor, or may be in need of a factor without realizing this fact, or for those who are called upon to advise a prospective factoring client. This book should be of use to those responsible for the financial and credit control plans of their company: the managing director or chairman of the smaller company, or financial director, chief accountant, or credit controller of the larger company. Of even more importance, we hope it is sufficiently detailed to enable accountants and other financial advisors, lawyers, credit insurance brokers, and bankers not directly concerned in the factoring process, to give a comprehensive picture of the service that can be expected, the resulting costs and obligations, the selection of a factor, and how factoring fits into the financial and administrative plans of a company. Finally, while factoring is rarely found today in the syllabus of economics or business courses, we would expect penetration to increase in this area with the expansion of factoring. Therefore the student undertaking such courses may find the ideas and information in this book of some value.

In planning this book we have attempted to set factoring within its proper financial perspective. First we give a brief introduction to factoring and various commonly used terms. We have then devoted the first part to the need for finance and financial planning, and the relevance of factoring, together with an outline of its development, scope, and general administrative and financial effect, both at national level and at that of the individual company. The second part focuses upon the management of working capital, the area upon which factoring has a direct financial impact. Finally, the third part investigates factoring in detail, as applied to domestic and international transactions. A word of caution is advisable at this stage. We have attempted to present factoring within a world context, particularly bearing in mind its American origins. The principles and practices detailed are, we believe, applicable generally. However, details of operations and legal status may vary between countries, if only to conform with different codes of law or business practices.

Information for this book has been gathered from many sources. It is appropriate to record our appreciation to our Associates throughout the Walter E. Heller International Corporation Network for providing detailed information covering local conditions. A special recognition is due to Mr. S. A. Lewy of the Walter E. Heller Overseas Corporation office in Chicago, to whom we are indebted for information and material relating to factoring in America, the country in which it evolved into its modern form.

Finally, thanks are due to our long-suffering secretaries, particularly MiSS A. Curr, Miss J. Tennant, and Mrs. J. Harris, for typing the original manuscript and enduring, together with our wives, Linda and Priscilla, the elations and depressions of the budding author.

MARTIN FORMAN JOHN GILBERT