Business leaders on Saturday stressed the need for introduction of international factoring system in the country to expedite export and import activities and accelerate cash flow in trade.
At a roundtable discussion on ‘international factoring: an alternative to letter of credit’ held at the Dhaka Chamber of Commerce and Industry auditorium in the capital, they said that factoring system, an instrument of payment and financing in international trade, would ensure full protection of export earnings against the importers’ inability to pay or deferred payment.
International factoring is a method of financing under which a third party, called factor company — mostly bank, financial institution or specialised factor company — offers services of purchase of invoices, bills or accounts receivable.
An exporter/seller can sell his/her invoices or accounts receivable on supply of goods to a factor and can get prices of goods in advance that reduce the risk of non-getting export earning or deferred payment.
In exchange, he/she pays the factor company factoring fees and other charges. The factor later collects the payment from the importer/buyer.
Business leaders and experts at the discussion said international factoring would also remove hassles in opening LC which is time consuming and costly.
They also demanded that Bangladesh Bank and other authorities should formulate necessary rules and regulations and develop skill and capacity to introduce the mechanism.
The DCCI and the Bangladesh Institute of Bank Management organised the discussion.
‘International factoring can be introduced on an experimental basis at the initial stage and expanded later the practice of this financial service in the country,’ DCCI president Mohammad Shahjahan Khan said.
He said that businessmen can obtain working capital by selling invoices to a factoring company that may a bank, non-bank financial institution or any other specialised company.
Factoring is becoming popular among both exporters and importers, he said.
MS Siddiqui, member of the DCCI standing committee on export policy, promotion, diversification, multilateral and bilateral trade agreements, said that the policymakers should understand the global practices and in line with it they should ensure a hassle free environment for the business community.
Businessmen face several problems in opening LCs as they have to fulfil many conditions imposed by different parties including importers and banks and maintaining LCs is costly and time consuming while factoring is comparatively less costly and hassle free, he said.
BIBM director Prasanta Kumar Banerjee in the key note paper said that in Bangladesh context, small and medium exporters would be benefited if the government adopts the mechanism.
It will increase exports as exporters will be able to offer competitive terms of sales to the foreign buyers.
It will also accelerate cash flow through faster collection of export bills that will help small and medium exporters who usually face shortage of working capital, he said.
Factoring cost is lower than aggregate charges for opening letter of credits, he said.
Bank and Financial Institutions Division secretary M Aslam Alam said that though international factoring charges more than other instruments, it is becoming more popular as exporters quickly get back their fund and reduce risk of non-payment by the buyers.
He urged the businesses to consider the negative sides of factoring method as the country had been suffering forgery in international transactions through back to back LCs and loan against trust receipts.
He also emphasised on building capacity, skills and institutional arrangements for introducing the method.
BIBM director general Toufic Ahmad Choudhury, Bangladesh Bank general manager Md Masud Biswas, Janata Bank chairman SA Chowdhury and DCCI vice-president Shahidul Islam spoke, among others, at the meeting.
-With New Age input
