The role of factoring for financing small and medium enterprises
Around 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.
|Date of creation:||01 May 2005|
|Date of revision:|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
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.:
- 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, 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.
- Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Legal Determinants of External Finance," Working Paper 19443, Harvard University OpenScholar.
- 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.
- Sopranzetti, Ben J., 1998. "The economics of factoring accounts receivable," Journal of Economics and Business, Elsevier, vol. 50(4), pages 339-359, July.
- Fisman, Raymond & Love, Inessa, 2001.
"Trade credit, financial intermediary development, and industry growth,"
Policy Research Working Paper Series
2695, The World Bank.
- 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.
- 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.
- John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships and Informal Credit in Vietnam," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1285-1320.
- McMillan, John & Woodruff, Christopher, 1998. "Inter-Firm Relationships and Informal Credit in Vietnam," CEPR Discussion Papers 2036, C.E.P.R. Discussion Papers.
- Simeon Djankov & Caralee McLiesh & Andrei Shleifer, 2005.
"Private Credit in 129 Countries,"
NBER Working Papers
11078, National Bureau of Economic Research, Inc.
- Inessa Love & Nataliya Mylenko, 2003. "Credit reporting and financing constraints," Policy Research Working Paper Series 3142, The World Bank.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:3593. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.