Factoring refers a financial transaction where a business sells their account receivable to a third party which is called a factor at a discount in exchange for immediate money with finance continued business. In respect that, factors usually establish a credit line with clients and designate the amount of credit that their clients can propose to customers. The factoring industry has the majority of small and medium sized companies, so there is sensitive to undulation in economic activities. Thanks to global markets, Turkish factoring companies become to rise in economic activities which provide three main services to their customers. These are discounting, collection and guaranteeing of domestic and also international future receivables with the assignment of receivables to the factory company. Factoring services have four main functions. Firstly, finance for the supplier who the factoring pays the client the amount essential for his working in exchange for his in voices. Secondly, in order to maintenance of the receivables account and the factoring company run the trade debt of the client who keeping the sales accounts ledgers and sending out the invoices. Thirdly, the factory company collects the payments due from the debtors of the client in collection of receivables. Lastly, the factoring company carriers the risk of any bad debt for protection against the default in payment by debtors.
Popularity of energy in factoring sector
According to BDDK statistics, in 2012 there are three energy sectors (nuclear fuel, petroleum products, coal) which are total factoring volume are increased to 3.5 billion TL from 1.3 billion TL. In addition to this, these three energy sectors impact the total share of factoring receivables to 17.9%. In particular, escalating of energy sectors enable investor to benefit from factoring services. Turkey involves in energy sectors which reflect the rate of factoring sector.
Factoring Companies Benefit from being Bank’s Subsidiary
There are 14 bank’s subsidiaries factoring companies operating in Turkey. These benefit from less equity capital and also provide much more loan facilities in comparison with independent factoring companies. On the other hand, financial controlling mechanism was necessary for the account receivables against bad debts and accuracy of financial statements and ratios. In connection with comprehensive audit reporting system target, new by law has been published in Official Gazette.
New Accounting Standards will bring transparency to factoring sector
Pursuant to new by law code 123 factoring firms shall issue their consolidated and non-consolidated financial statements together with independent audit report following confirmation of general assembly within seven days. These documents shall be accessible for five years. Furthermore, factoring firms are required to make provision for uncollectible receivables.
- 20% provision should be made for receivables that are not collected between 90-180 days.
- 50 % provision shall be made for both capital and interests that are not obtained up to 1 year
- If the maturity of payment is overdue for more than 1 year, 100% provision shall be made.