Factoring Agency Business

Most business owners prefer to receive payments as cash on delivery. Many companies, however, especially SME’s find themselves in a situation where their customers take weeks or even months to process a payment, yet they still have to pay for taxes, employees and honour other contracts. This makes it hard to grow your company when your receivables are stuck somewhere in your clients’ accounts.

In Rwanda’s growing economy, business opportunities are knocking. Yet, often a company cannot take advantage of these opportunities because there is no cash to purchase necessaries or hire someone to deliver the services. Access to finance is the main challenges faced by companies in Rwanda. Local banks will often not finance smaller or medium-sized businesses (SMB) without credit history or which do not have enough assets to give as collateral. There are also other criteria the banks follow like age of the company, which sector of operation and more.

If SMB does not meet the eligibility for a loan or line of credit, what does it do then? Factoring is an alternative financial service that may provide SMB with the stability and breathing space to grow its business. It does this by stabilizing its cash flow, which will help SMB grow without being hindered by lack of working capital.

Similar to invoice factoring or accounts receivables factoring, it is a financial service where a company can sell out its accounts receivables for a fee. A company may choose to sell its pending payment to a third party called a factor for a fee so that they get cash in hand quicker.

Factoring is a type of finance in which a business would sell its accounts receivable (invoices) to a third party to meet its short-term liquidity needs. Under the transaction between both parties, the factor would pay the amount due on the invoices minus its commission or fees.

Channel of Delivery

Factoring provides basically three separate services to the seller firm by assigning the term receivables arising or to arise from these sales of companies that have invoiced and check goods or service sales; It is a financing method in which guarantees, receivables management and finance are offered. Factoring is carried out between commercial debtors, SAMPRO (Factoring companies), and commercial enterprises that sell goods or services.

In simpler terms, factoring provides funding for Commercial enterprise to successfully grow its business by providing regular cash flow so that it can fulfill its fast financing transactions. With factoring, the Commercial Enterprise can transform its sales into cash and achieve a healthier growth of its business.

Tradesmen and SMEs gain advantage by reaching cash quickly and reliably with factoring service.

Through the factoring transaction, there are three parties in a factoring transaction: debtor, seller and SAMPRO. The transaction is done through the following channel and delivery :

• Transferring the invoiced receivables to the factoring company;

• Follow-up of transferred receivables by the factoring company;

• Collection of transferred receivables by the factoring company;

• The risk of non-payment of receivables based on service is undertaken by the factoring company;

• Keeping records of receivables;

• It is based on a certain amount of advance payment in return for the transferred receivables.

Usually, the commercial debtor is notified of the sale of the receivable, and the factor bills the debtor and makes all collections.

Target customers/sectors

Invoice factoring providers are adapted to specific industries. This often affects services offered by the factor in order to adapt the factoring services to the needs of the business. 

In our dealings, we will focus on the following sectors/products.

1.Medical factoring 

The healthcare industry makes a special case in which factoring is much needed because of long payment cycles from RSSB, private  insurance companies and other third party payes, but difficult because of verification requirements.  For this reason, medical receivables will be our target in factoring.

2.Supply chain Finance

Tea Factories and food producers or other participants in the supply chain have processes to go through following the receipt of invoices to be paid from different suppliers. The process distinguishes between the supply, presentation of the invoices and payment. The use of factoring by the suppliers will be of help to reduce the turnarounds.  As they become more comfortable with their buyer and Supplier relationships, an agreement will be made from the buyer to the financier (factor). These transactions are more like regular payments for a continuing flow of goods rather than specific transactions.  The extension of payment terms is becoming progressively common as it is much cheaper for the Corporate and offers mutual benefits.

3.Trade Finance 

Trade Finance may be understood as a wide range of tools at the financier’s disposal, all of which determine how cash, credit, investments and other assets can be utilized for trade.  It is used when financing is required by buyers and sellers to assist them with the trade cycle funding gap. It will also intervene in settling the conflicting needs of the exporter and the importer.   In order to meet short-term liquidity needs, a business has to sometimes resort to factoring. 

There are major industries which stand out in the factoring industry, which are:

1. Distribution

2. Retail

3. Manufacturing

4. Transportation

5. Services

6. Construction.

However, most businesses can apply invoice factoring successfully to their funding model.


Application Process

The client may submit its application by email or deliver hardcopy to the office.  The customer care Officer will register the application in the designed register. An acknowledgment will be sent to the applicant and requesting him/her to deposit the study fee to the determined account and the study of the file will commence upon confirmation of the payment of the study fee.

Maturity Period

Any facility in factoring services will be awarded for a period not exceeding 90 days.

Credit reporting procedures 

There will be internal reporting and all beneficiaries of the report are bound of the confidentiality.  Beyond, SAMPRO will subscribe to the licensed credit bureau in Rwanda through a formal agreement.

In any notification granting facility or any forfaiting agreement, there will be a clause on consent by which the client will allow SAMPRO to share information with the Credit Bureau Reference all data related to the credit facility. SAMPRO LTD will also have to share such information to the Regulator as required by the regulations related to the credit reporting. 

Consumer Protection

SAMPRO will treat its client fairly, honestly without discrimination and exercise due care, skill and diligence with regard to the factoring services it will provide.  SAMPRO will train its Staff on how to treat factoring services consumers.

SAMPRO Staff must be transparent in the way they communicate with clients in relation to its products and the costs thereof.   Each Staff has to disclose any conflict of interest that may result in unfair treatment of our product.

SAMPRO keeps and protects confidentiality and security of personal information of the client and against any anticipated treats or hazard to security or integrity of the information.

SAMPRO will provide its clients, free of charge with a key facts statement for our product to enable the client to make an informed decision about acquisition of our services.

SAMPRO has taken all measures required to comply with laws and regulations on consumer protection of the financial services in force in Rwanda.

Pricing model

In exchange of the factoring services to be rendered to different client, SAMPRO intends to collect  price which is better fit with the customer’s perspective, which will bring profits allowing  to acquired more resources and grow its business.

The following fees will apply:

• Fees for Opening file  :11,800 Frw VAT included

• Study fee : 1% of the face value of receivable presented for factoring

• Commitment fee : 1% of funds granted in factoring 

• Factoring fee : 8% each month until the maturity date.

The pricing strategy may change from time to time depending to the market from the client to another on clear conditions.

Data Protection Mechanisms

Everyone who works for or with SAMPRO Ltd has some responsibility for ensuring data is collected, stored and handled appropriately.

Each team that handles personal data must ensure that it is handled and processed in line with this policy and data protection principles:

• The only people able to access data covered, should be those who need it for their work;

• Data should not be shared informally. When access to confidential information is required, employees can request it from their line supervisors;

• SAMPRO Ltd will provide training to all employees to help them understand their responsibilities when handling data;

• Employees should keep all data secure, by taking sensible precautions and following the guidelines;

• In particular, strong passwords must be used and they should never be shared;

• Personal data should not be disclosed to unauthorised people, either within the company or externally;

• Data should be regularly reviewed and updated if it is found to be out of date. If no longer required, it should be deleted and disposed of;

• Employees should request help from their line supervisor if they are unsure about any aspect of data protection; 

SAMPRO takes  all measure to ensure compliance with the law and regulations governing data protection in force in Rwanda.