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Monday 18.11.2019 | Name days: Doloresa, Aleksandrs

Factoring market declines by 50.5%

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Last year, compared to 2008, the factoring market in Latvia has shrunk by 50.5%, indicates the Latvian Lessors Association data.

The factoring portfolio last year accounted for 105.026 million lats, compared to 212.593 million in 2008. This year, the factoring portfolio also continues to decline, dropping already below 50 million lats over the past seven months, reports LETA.

The Association points out, in 2008, the factoring portfolio volume reached its apex, because when companies’ gross profitability almost did not increase at all, they tried to speed up the working capital turnover rate and increase the turnover by attracting the factoring funding. Also the high inflation rates of 2007- 2008 have made factoring more favourable, because in the situation when the product prices constantly grew, it was important for the entrepreneurs to receive payments for the sold goods as soon as possible. The factoring funding was available and less expensive; therefore, it was widely used, explains the Association.

Moreover, the Association links the rapid decline with the fact that factoring providers began to more cautiously assess their clients, extending the factoring lines. As a result, only several service receivers were able to extend the factoring lines acquired in 2008.

What is more, trade turnover drop considerably reduced the entrepreneurs’demand for factoring. The companies faced difficulties of finding customers, inflation decreased, deflation occurred, while the need to accelerate the working capital turnover rate was replaced by the necessity to at least somehow sell the existing stocks of goods, indicates the information available on the Association homepage.

Furthermore, factoring has become a more expensive service – the factoring companies’ resource prices grew, as well as the risks associated with factoring; and consequently the debtors’ insurance also became more costly.

The Latvian Lessors Association predicts the factoring funding volumes, most likely, will not decline significantly, as the majority of the companies still using factoring are working with customers from foreign countries, and directly feel the positive effects of the Latvian export growth.

Factoring is a loan for financing the working capital in return for debtor bonds. It is a service designed to improve cash flow, and is based on cash claims (the account receivables) transfer to the factoring company, receiving back an instant payment. Consequently, factoring enables obtaining funds without direct guarantee. Its only security is the receivables or money that has to be paid by customers.


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