The role of factoring for financing small and medium enterprises
AbstractAround the world, factoring is a growing source of external financing for corporations and small and medium-size enterprises (SMEs). What is unique about factoring is that the credit provided by a lender is explicitly linked to the value of a supplier's accounts receivable and not the supplier's overall creditworthiness. Therefore, factoring allows high-risk suppliers to transfer their credit risk to their high-quality buyers. Factoring may be particularly useful in countries with weak judicial enforcement and imperfect records of upholding seniority claims because receivables are sold, rather than collateralized, and factored receivables are not part of the estate of a bankrupt SME. Empirical tests find that factoring is larger in countries with greater economic development and growth and developed credit information bureaus. In addition, the author finds that creditor rights are not related to factoring. The author also discusses reverse factoring, which is a technology that can mitigate the problem of borrowers'informational opacity in business environments with weak information infrastructures if only receivables from high-quality buyers are factored. She illustrates the case of the Nafin reverse factoring program in Mexico and highlights how the use of electronic channels and a supportive legal and regulatory environment can cut costs and provide greater SME services in emerging markets.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 30 (2006)
Issue (Month): 11 (November)
Contact details of provider:
Web page: http://www.elsevier.com/locate/jbf
Other versions of this item:
- Klapper, Leora, 2005. "The role of factoring for financing small and medium enterprises," Policy Research Working Paper Series 3593, The World Bank.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Raymond Fisman & Inessa Love, 2003.
"Trade Credit, Financial Intermediary Development, and Industry Growth,"
Journal of Finance,
American Finance Association, vol. 58(1), pages 353-374, 02.
- Raymond Fisman & Inessa Love, 2002. "Trade Credit, Financial Intermediary Development and Industry Growth," NBER Working Papers 8960, National Bureau of Economic Research, Inc.
- Fisman, Raymond & Love, Inessa, 2001. "Trade credit, financial intermediary development, and industry growth," Policy Research Working Paper Series 2695, The World Bank.
- Van Horen, Neeltje, 2004. "Trade Credit as a Competitiveness Tool;Evidence from Developing Countries," MPRA Paper 2792, University Library of Munich, Germany, revised Mar 2005.
- Glaessner, Thomas & Kellermann, Tom & McNevin, Valerie, 2002. "Electronic security - risk mitigation in financial transactions : public policy issues," Policy Research Working Paper Series 2870, The World Bank.
- Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, .
"Legal Determinants of External Finance,"
19443, Harvard University OpenScholar.
- Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Harvard Institute of Economic Research Working Papers 1788, Harvard - Institute of Economic Research.
- RAFAEL LaPORTA & FLORENCIO LOPEZ-de-SILANES & ANDREI SHLEIFER & ROBERT W. VISHNY, . "Legal Determinants of External Finance,"," CRSP working papers 324, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," NBER Working Papers 5879, National Bureau of Economic Research, Inc.
- Sopranzetti, Ben J., 1998. "The economics of factoring accounts receivable," Journal of Economics and Business, Elsevier, vol. 50(4), pages 339-359, July.
- McMillan, John & Woodruff, Christopher, 1998.
"Inter-Firm Relationships and Informal Credit in Vietnam,"
CEPR Discussion Papers
2036, C.E.P.R. Discussion Papers.
- John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships And Informal Credit In Vietnam," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1285-1320, November.
- John McMillan & Christopher Woodruff, 1998. "Interfirm Relationships and Informal Credit in Vietnam," William Davidson Institute Working Papers Series 132, William Davidson Institute at the University of Michigan.
- Glaesnner, Thomas G. & Kantur, Zeynep, 2004. "Two case studies on electronic distribution of government securities: the U.S. Treasury Direct System and the Philippine Expanded Small Investors Program," Policy Research Working Paper Series 3372, The World Bank.
- Inessa Love & Nataliya Mylenko, 2003. "Credit reporting and financing constraints," Policy Research Working Paper Series 3142, The World Bank.
- Raymond Fisman & Mayank Raturi, 2003. "Does Competition Encourage Credit Provision? Evidence from African Trade Credit Relationships," NBER Working Papers 9659, National Bureau of Economic Research, Inc.
- Raymond Fisman & Mayank Raturi, 2004. "Does Competition Encourage Credit Provision? Evidence from African Trade Credit Relationships," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 345-352, February.
- Simeon Djankov & Caralee McLiesh & Andrei Shleifer, 2005.
"Private Credit in 129 Countries,"
NBER Working Papers
11078, National Bureau of Economic Research, Inc.
- Didier, Tatiana & Schmukler, Sergio L., 2013. "Financial development in Latin America and the Caribbean : stylized facts and the road ahead," Policy Research Working Paper Series 6582, The World Bank.
- Santos, Gisler Andre & Sheng, Hsia Hua & Bortoluzzo, Adriana, 2012. "The Use of Trade Credit by Firms: Evidence for Latin America," Insper Working Papers wpe_277, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
- Hirofumi Uchida & Gregory F. Udell & Nobuyoshi Yamori, 2006. "SME financing and the choice of lending technology," Discussion papers 06025, Research Institute of Economy, Trade and Industry (RIETI).
- Demirguc-Kunt, Asli, 2006. "Finance and economic development : policy choices for developing countries," Policy Research Working Paper Series 3955, The World Bank.
- de la Torre, Augusto & Gozzi, Juan Carlos & Schmukler, Sergio L., 2006. "Financial development in Latin America : big emerging issues, limited policy answers," Policy Research Working Paper Series 3963, The World Bank.
- Beck, Thorsten & Demirguc-Kunt, Asli, 2006.
"Small and medium-size enterprises: Access to finance as a growth constraint,"
Journal of Banking & Finance,
Elsevier, vol. 30(11), pages 2931-2943, November.
- Beck, H.T.L. & Demirgüç-Kunt, A., 2006. "Small and medium-size enterprises: Access to finance as a growth constraints," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125429, Tilburg University.
- Morgan, Horatio M., 2013. "Foreign banks and the export performance of emerging market firms: Evidence from India," Research in International Business and Finance, Elsevier, vol. 29(C), pages 52-60.
- World Bank, 2010. "Bhutan Investment Climate Assessment Report : Vitalizing the Private Sector, Creating Jobs, Volume 1. Summary Report," World Bank Other Operational Studies 12871, The World Bank.
- Dong Xiang & Andrew C. Worthington & Helen Higgs, 2011. "Firm-level determinants and impacts of finance-seeking behaviour and outcomes for small and medium-sized enterprises (SMEs) in Australia," Discussion Papers in Finance finance:201115, Griffith University, Department of Accounting, Finance and Economics.
- Stephanou, Constantinos & Rodriguez, Camila, 2008. "Bank financing to small and medium-sized enterprises (SMEs) in Colombia," Policy Research Working Paper Series 4481, The World Bank.
- World Bank, 2006. "Mauritius : From Preferences to Global Competitiveness, Report of the Aid for Trade Mission," World Bank Other Operational Studies 8171, The World Bank.
- World Bank, 2007. "Costa Rica : Investment Climate Assessment," World Bank Other Operational Studies 7691, The World Bank.
- World Bank, 2010. "Scaling-Up SME Access to Financial Services," World Bank Other Operational Studies 12515, The World Bank.
- Berger, Allen N. & Udell, Gregory F., 2006. "A more complete conceptual framework for SME finance," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 2945-2966, November.
- Wuttke, David A. & Blome, Constantin & Henke, Michael, 2013. "Focusing the financial flow of supply chains: An empirical investigation of financial supply chain management," International Journal of Production Economics, Elsevier, vol. 145(2), pages 773-789.
- World Bank, 2007. "Colombia : Bank Financing to Small- and Medium-Sized Enterprises (SMEs) in Colombia," World Bank Other Operational Studies 7654, The World Bank.
- Ivanovic, Sasa & Baresa, Suzana & Sinisa, Bogdan, 2011. "Factoring: Alternative Model Of Financing," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 2(2), pages 189-206.
- World Bank, 2010. "Bhutan Investment Climate Assessment Report : Vitalizing the Private Sector, Creating Jobs, Volume 2," World Bank Other Operational Studies 12872, The World Bank.
- Berger, Allen N. & Udell, Gregory F., 2005. "A more complete conceptual framework for financing of small and medium enterprises," Policy Research Working Paper Series 3795, The World Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.