Enlarge Turkey-Taiwan trade by using factoring1 Presented by : Mario Kan At : Turkey-Taiwan factoring seminar October 2012 Taipei Taiwan How to enlarge Turkey-Taiwan trade business by using factoring and other financial vehicles

Enlarge Turkey-Taiwan trade by using factoring2 CONTENTS 1.Business types of Taiwanese enterprises facilitating Turkey-Taiwan trade 2.Enhance account receivables 3.Sample cases 4.Key issues affecting factoring business between Turkey and Taiwan 5.EBRD supports to factoring business Contents TFP OF EBRD

Enlarge Turkey-Taiwan trade by using factoring3 Business types zTaiwan importers buy from Turkish exporters zTaiwan exporters sell to Turkish importers zTaiwan enterprise establishing warehouse or distribution center in Turley (for Turkish local market and/or for other countries ) zTaiwan enterprises set up sourcing office or primary processing factories in Turkey for exporting to Asian countries TFP OF EBRD

Enlarge Turkey-Taiwan trade by using factoring4 Move toward a higher value style Marketing, Customer service R&D, Brand name High Value added Low Manufacturer And Agriculture TFP OF EBRD

Enlarge Turkey-Taiwan trade by using factoring5 Factor serves a large seller Seller Buyer Factor Service Correspondent Factor Correspondent Factor Correspondent Factor Correspondent Factor TFP OF EBRD

Enlarge Turkey-Taiwan trade by using factoring6 Factor serves small sellers Buyer Seller Factor Service TFP OF EBRD

Enlarge Turkey-Taiwan trade by using factoring7 Factors serve industrial chain Semi-products Producer Semi-products Producer Final Products manufacturer Raw material supplier Factor TFP OF EBRD

Enlarge Turkey-Taiwan trade by using factoring8 Payment terms in trade activities A/R Occurred Documentary Credit Documentary Credit D/P Non-payment Consignment Cash on delivery Usance Credit Pay in arrears Open Account Documentary Collection Documentary Collection Sight Credit Pay in advance D/A TFP OF EBRD

Enlarge Turkey-Taiwan trade by using factoring9 Definition of factoring The supplier (seller) assigns his accounts receivable (in full or partially) to a Factor, whether or not for the purpose of finance, or at least one of the following functions ： - Receivables ledgering - Collection of receivables - Protection against bad debts. TFP OF EBRD

Enlarge Turkey-Taiwan trade by using factoring10 Legal role of related parties A acts for B A represents B A acts on behalf of B A acts as agent of B A takes position of B TFP OF EBRD

Enlarge Turkey-Taiwan trade by using factoring11 Basic functions of factoring The Factor provides following services to his Clients (suppliers, sellers) ： Collection ： take the position of Client to collect the receivables on appropriate due date. Book keeping ： receivables ledger keeping with periodical management reports. Credit & sovereign risk assumption ： does not cover commercial dispute problems. TFP OF EBRD

Enlarge Turkey-Taiwan trade by using factoring12 Quality of accounts receivable Commercial dispute The invoice not be paid Unpaid reason The buyer unwilling to pay The buyer unwilling to pay The buyer agrees but unable to pay The buyer agrees but unable to pay Sovereign problemCredit failure TFP OF EBRD

Enlarge Turkey-Taiwan trade by using factoring13 Enhance the quality of receivables To avoid the commercial dispute ： fulfill the requirement to keep a mutual satisfactory business relationship. To resolve the dispute ： arbitration or compromise. To cover the credit and sovereign risk ： hold collaterals or buy an insurance (A credit insurance will never cover any form of commercial dispute problem) TFP OF EBRD

Enlarge Turkey-Taiwan trade by using factoring14 Securities/Collaterals Conditions of a good collateral ： easy to access, non/low cost will occurred upon liquidation, foreseeable liquidated value. Not easy to access Pledge of cash deposit Pledge of cash deposit Government guarantee Government guarantee Bank or FI guarantee Bank or FI guarantee Real estate mortgage Real estate mortgage Chattel mortgage Chattel mortgage Easy to access TFP OF EBRD

Enlarge Turkey-Taiwan trade by using factoring15 Business types of factoring Collection service Ledger service Financing package Credit insurance A/R assignment ＋＋ Collection service Ledger service A/R assignment ＋＋＋ Collection service Ledger service A/R assignment ＋＋＋ Credit insurance Collection service Ledger service A/R assignment ＋＋＋＋ Financing package With recourse Without recourse Pay on due date Pay on due date TFP OF EBRD

Enlarge Turkey-Taiwan trade by using factoring16 Finance functions of factoring zThe quality of receivables will be enhanced through a risk coverage assumed by the Factor, the Seller is therefore in a easier position to obtain financing service from separate lenders or from the Factor. zFinance arrangement linked to factoring may considered as a lending/borrowing against the receivable or a purchase/sell of the receivable. TFP OF EBRD

Enlarge Turkey-Taiwan trade by using factoring17 Sample case ： Sales to 2000 Pharmacy stores Pharmaceutical manufacturer Pharmaceutical manufacturer Factor Pharmacy store Pharmacy stores Pharmacy store Factor’s branches Salesmen are responsible for collection job Before use factoring Collection and book keeping service Operational control Group customers TFP OF EBRD

Enlarge Turkey-Taiwan trade by using factoring18 Credit risk associated with two factors business Credit coverage on buyer Advance payment to seller No Yes No YesNo Yes No credit risk Credit risk on seller Credit risk on correspondent factor No dispute risk Credit risk on correspondent factor Dispute risk on seller TFP OF EBRD

Enlarge Turkey-Taiwan trade by using factoring19 Credit line granting (two factors business) Request for credit coverage Request for advance payment No Yes No need credit line Credit line for seller Request for advance payment NoYes No Credit line for Import Factor Credit line for seller Credit line for Import Factor Covering dispute TFP OF EBRD

Enlarge Turkey-Taiwan trade by using factoring20 Key issues between Turkey and Taiwan Taiwanese Factor Taiwanese Factor Turkish Importer Turkish Importer Taiwanese Exporter Taiwanese Exporter Turkish Factor Turkish Factor Lack of Correspondent credit TFP OF EBRD

Enlarge Turkey-Taiwan trade by using factoring21 EBRD supports factoring business Taiwanese Factor Taiwanese Factor Taiwanese Exporter Taiwanese Exporter EBRD Turkish Factor Turkish Factor Turkish Importer Turkish Importer Credit Guarantee TFP OF EBRD