Factoring and Accounts Receivable Discounting. An Evidence from the Egyptian Market

Abstract

This is an academically audited thesis that is examining the relationship between company's decision to factor its receivables and its financial strength. It also examines a hypothetical relationship between factoring and SMEs.

Full text

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Faculty of Postgraduate Studies and Scientific Research
German University in Cairo
Factoring and Accounts Receivable Discounting
By
Ibrahim Ahmed Ibrahim Farag
Date
Sep. 2013

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ABSTRACT
This paper spots the light on the Factoring and invoice discounting as alternative finance
methods and account receivable management policies. Through Inductive content
analysis approach, this research develops and tests different hypotheses suggesting a
linear relationship between a company’s decision to factor its receivables and company’s
size (Large corporate or Small and Medium size Enterprises) “SMEs”, company’s
exposure to international trade, financial strength, and whether the Factoring decision
itself is regarded as a basic or a primary source of finance like the conventional credit
obtained from the commercial banks or regarded as an alternative source of finance. To
test the hypotheses, the author interviewed the senior decision makers of 15 Egyptian
companies who were all offered the Factoring finance.
This is a unique study which is thought to be the only one to address the Factoring as a
finance option in Egypt, or at least after the revolution. Result of the study was surprising
and different from our initial assumptions as it found no linear relationship between
company’s decision to Factor its receivables and its financial strength despite our initial
perception of Factoring as a sign of weakness. Result of the study also showed that
Factoring in Egypt is also not necessary linked to SMEs it is more of a finance option
available to whoever can yield a surplus profit to cover the financing costs. Study
however reaffirmed our other hypotheses that Factoring is more suitable to those
companies involved in the international trade and the fact that Factoring image is under
exposed and its reputation as an alternative finance. Study also found a linear relation
between company’s decisions to Factor its receivables and its liquidity and another
relation relationship between the same decision and the cost of Factoring. The insistent
need for the liquidity vs. other options available to the company has been always one
very strong reason why a company decided or refused to factor its receivables despite its
high cost of finance compared to the traditional bank finance.

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Table of Contents
Introduction ...................................................................................................................... 5
Chapter (1) Factoring to finance the working captial………………………………...7
1.1 Introduction ………………………………………………………………………....7
1.2 Accounts receivables management and liquidity ……………………………………8
1.3 Definition of Factoring ………………………………………………………………8
1.4 Theorticial background about Factoring…………………………………………...10
1.4.1 Historical roots of Factoring............................................................................................. 10
1.4.2 Types of Factoring ........................................................................................................... 11
1.4.3 How do Factors work? The mechanism of Factoring………………………………….…14
1.5 Difference between Factoring and traditional banking practices………………….15
1.6 Understanding the relationship between Factoring and commercial banks….…....16
Chapter (2) Factoring: A sign of strength or a sign of weakness.………...….…….18
2.1 Determinant of the Factoring decision….................................................................18
2.1.1 Typical industries usually associated to Factoring business……..………………….........18
2.1.2 Common criteria affecting a firm’s decision to factor/discount its receivables.................19
2.2 Advantages of Factoring..........................................................................................21
2.3 Factoring as a finance alternative to grow the SMEs..............................................23
2.4 Factoring: A sign of strength or weakness?.............................................................23
2.5 Global trends in invoice discounting and Factoring…………………………..…..25
Chapter (3) Research methodologies………………………………………………...26
3.1 Introduction………………………...……………………………………………..26
3.2 Hypotheses………..………………...………………………………...…………..26
3.3 Sample …………………………………………………………………………...26
3.3 Interviews …………………..…………………………………………………...27

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Chapter (4) Results and Limitations………………………………………………..29
4.1 Results….………………………….…………………………..…………………29
4.2 Limitations……......…………………………………………………..……….....30
Chapter (5) Recommendation………………………………………………………32
Recommendations…………………………………………………………………...32
References……………………………………………………………………………………34
Appendix……………………………………………………………………………………..36

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Introduction
Factoring is a very old business and studies about Factoring are quite old as well. This
business has developed over the time and accordingly the scope and definition of
factoring changed simultaneously. Back on 60s (Robuchek, Teichroew, &Jones; 1965)
defined Factoring in a very simple and concise term. They defined factoring as a mean of
short term financing such as trade payables. In the same year (Phelps; 1965) defined
Factoring as an agreement under which the Factor “The financer” assumes the credit and
collection function of its client, purchase his receivables as they arise without recourse
for credit losses.
Finance market is weathering a state of turbulence in Egypt and many sectors are finding
it uneasy to access credit from commercial banks especially after the revolution. We
therefore belief in the importance of the Factoring business and its high potential in the
Egyptian market and this is why the importance of this study.
This study conducts interviews with 15 CEOs, CFOs, and corporate treasurers
representing a random sample of corporates working in the Egyptian market. It first
presents this business to the Egyptian market and also explores the market’s view of
factoring as well. It analyzes and suggests the most influential criteria which may affect
debtor’s decision whether to Factor or not to Factor its accounts receivables. The results
of the study showed that all the companies were mainly cost sensitive and none of them
had a stronger motive to affect their finance decision. Also, all the interviewed companies
defined liquidity as a common reason why they factored the accounts receivables.
Companies didn’t weigh a lot on the services presented by factors to justify its high
pricing. Those who refused the Factoring offer mostly refused it due to is high financing
cost and those who accepted the Factoring did it only for the liquidity with less
importance given to other services presented by Factors like “Credit insurance
1
” for
instance.
1
It may be noted that the credit insurance is not very popular in Egypt and not widely applicable in the domestic market unless to
insure the commercial debt extended to multinational companies which actually doesn’t add a lot to the suppliers whose already
accepting this reasonable risk and would need it only for less quality commercial credit. Credit insurance “Without recourse

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The research concludes that factoring companies are having a lot of challenges including
the high financing cost, complicated legislations, and market culture and immaturity in
Egypt where this business is relatively new. Most of the sample viewed the Factoring as
an alternative finance option although some of them looked at Factoring simply as a
different or a specialized type of finance not necessary an alternative finance.
Study finds Factoring as a valid way to finance the international trade and both importers
and exporters whom can take a full advantage of all the services rendered by Factoring
companies.
One other finding of the study was the fact that most of the CFOs viewed Factoring
service as equally important and suitable to both the SMEs and large corporates which
came in line with their consensus that Factoring is not a sign of weakness unlike our
initial hypothesis.
The study suggests that Factoring is very important method of finance; it is however,
according to the study, needs to be better positioned in the Egyptian market. It also needs
more innovative ways to reduce its cost to enhance its competitiveness. Study also
suggests that Factors can align themselves more to the commercial banks as to assist in
the non-performing and low credit scoring accounts in line with Factors acceptance of
higher credit risks.
Factoring” however is offered to the exporters to secure their overseas commercial credit. That will be understood and reflected in the
feedback of CFOs as will show on a later section.

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Chapter (1) Factoring to finance the Working capital
1.1 Introduction
Businesses rely on many sources of fund to finance their working capital, the current
assets. Those sources are either provided internally through owner's equity (Irwin; 2006),
or externally through trade creditors (Mian& Smith; 1992) or typically provided by
different lenders and financers including the scope of our study being the “Factors”.
It is therefore a very important decision of any management to identify the best finance
source considering the pros and cons of each of the decisions. While trade credit
(Commercial credit from suppliers) entails the company to many benefits, it also bears it
to other types of costs such as, opportunity cost of losing the cash discount, tax benefits
against deductibility of interest paid to lenders, and exposes the buyer (trade debtor) to
price discrimination in addition to other practices of bargaining power of the supplier.
Hence, the finance from the shareholders (Equity) while being considered the safest
financing option it is efficiently regarded as the most costly option for finance for any
efficient business.
The last option therefore is the external finance and herein we consider the
factoring/receivable discounting as the scope of our study. Accounts receivable and their
collectability are very important for the survival and growth of business, they account for
"Substantial fraction of corporate asset" therefore implies potential consequences on
firm's value" (Mian, Smith; 1992). Smart management of accounts receivable accordingly
can give the company an advantage to achieve a higher returns on its assets. Financially
distressed companies on the other hand are having a trade off whilst managing of those
receivables, a manifested conflict between transaction profitability vs. liquidity meaning
that a financial distressed company has to choose between liquidity and losing a market
share and granting a cash discount, thus accepting a lesser transaction profitability, or to
sell more with a higher price and giving up its already distressed liquidity.

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1.2 Accounts receivable management and the liquidity
ARM is defined as "Alternate assignment of some or all of the activities/functions
associated to the commercial debt finance decision, a result of which would be the
creation of accounts receivable as an asset in books of the seller”. As shown above the
decision to finance a company’s working capital has been very important and a key factor
influencing company’s profitability and survival sometimes.
Distressed companies normally having only one way to survive which is to increase sales.
Liquidity yet comes as a challenge facing distressed companies to achieve this target.
A company’s decision to factor its receivables is therefore sometimes critical for business
survival. Likewise, fast growing corporate are investing a sizeable part of its assets in
the trade receivables which also creates a negative operating cash flow that can also
hinder its sustainable growth. Receivable management is one way to help distressed
companies going out of its financial distress and to help fast growing ones to expedite its
growth. However, receivable discounting business is arguably still quite unknown to
Egyptian market which, for decades, had been overwhelmed by traditional banking
services and classic lending types. Securitization, Forfaiting, Invoice discounting, and
Factoring come amongst most common receivable discounting techniques. This research
focuses on the Factoring and the invoice discounting and introduces both receivable
discounting techniques as reliable alternatives to provide the cash flow needed for the
companies to fuel its growth and to overcome liquidity distress.
1.3 Definition of Factoring:
Over the years, Factoring has grown and its scope also extended and evolved. Likewise
definition of Factoring developed and kind of changed over the years.
(Kerr; 1981) extended the scope of Factoring to cover activities presented by Factors
other than lending. He defined Factoring as buying of client's accounts receivable either
through advancing him money against the collection or paying him out of the collection;
which he named a "maturity factoring".

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(Mian; 1992) suggested a simple definition of Factoring being company's sale of its
accounts receivables to a financial institution other than its captive one. (Sopranzetti;
1999) defined Factoring through the eyes of service providers, the Factors, being a
financial institution that are in the business of buying and managing other firm's accounts
receivables whereas through a typical Factoring contract the Factor bears credit risk and
the responsibility to monitor the credit quality of the outstanding accounts receivable.
(Rober, Carl; 2000) defined Factoring as a process where the lender, the Factor,
underwrites the extension of credits by purchasing accounts and notes receivables of a
given company, consequently, customers of this company are notified about the transfer
of debt from the seller to the Factor. This very detailed explanation of the transaction
itself as to define the Factoring is elaborated later and presented as “Notification
Factoring”.
(Soufiani; 2002) who is an important and seasoned finance scholar who specialized in
Factoring didn’t go quite far from the very old definition of (Kerr; 1981) and thus defined
Factoring as an economic decision whereby a specialized firm undertakes the
responsibility for the administration and control of a company's debtor portfolio enabling
the company to sell their accounts receivables at a discount in exchange for cash.
(Weisel, Harm, & Bradley; 2003) in a very innovative definition resembled the Factoring
of receivables to the use of credit card, whereas a company sells product to customer
against credit guaranteed, collected and hence paid by issuing bank without recourse on
the seller on the event of credit default by the buyer whose payment is assigned to the
issuing bank of the credit card. In another word, the company sells the receivable to the
host bank which collects and guarantees the full amount and repays it minus small
percentage. Reduced credit risk, and faster cash flow for the company, is hence the
primary motivation. (Krishna; 2005) analyzed the financial sector market in India and
previewed Factoring only as traditional fund-based financial service.

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Citing Factors' traditional orientation and consideration to Small and Medium Size
Enterprises (Whale, Trevor; 2004) described the Factoring as a method of commercial
finance while (Hubbard; 1987) and (Asselbergh; 2002) described Factoring as an
alternative mean of finance. (Miller; 2009) previewed Factoring as a type of accounts
receivable finance and defined its business scope, in line with previous definition, as a
secondary market that is alternative to bank finance.
FCI is “Factors Chain International” presents itself as “A global network of leading
Factoring companies, whose common aim is to facilitate international trade through
Factoring and related financial services. FCI network counts 263 Factors in 72 countries,
actively engaged in more than 80% of the world's cross-border Factoring volume”. It
covered the range of services provided by Factors in its definition defining Factor as “A
complete financial package that combines working capital financing, credit risk
protection, accounts receivable bookkeeping and collection services. It is offered under
an agreement between the Factor and a seller. Under the agreement, the Factor purchases
seller's accounts receivable, normally without recourse, and assumes the responsibility
for the debtor's financial ability to pay. If the debtor goes bankrupt or is unable to pay its
debts for credit reasons, the Factor will pay the seller. When the seller and the buyer are
located in different countries the service is called international Factoring”.
1.4 Theoretical background about Factoring
1.4.1 Historical roots of the Factoring business
Factoring is known as far back as the 14th century (Zinner; 1947) while its roots go back
to the Norman quest in connection to the wool industry (Hillyer; 1939). The word
"Factor" is derived from the Latin word "Facere" to make or to do- i.e. to get things done
(Palia & Sopranzetti; 2004).
(Silverman; 1949) explained the start of Factoring when "Factors" were merchant in
colonies who had used to assume the risk of credit losses and perform the function of
collection to the account of the European merchants during Fifteenth and sixteenth
centuries, Factoring scope had since progressed and undergone a structural change and
focused the business only on Financial, credit, and collection service without

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merchandising and storage functions Factors had used to carry on before 1930. He hence
defined Factors as financial institutions which principal purpose if the make credit
available to industry through purchase of accounts receivables.
Despite UK and US have been the major forces in Factoring and discounting business, of
which Europe accounts for two thirds of world Factoring business most of which is being
done in UK and Italy (Deacon & Whale, 2004), Factoring image however is still
underexposed and controversial there (Hubbard, 1987).
1.4.2 Types of Factoring
Academicians and professionals have got different classifications for Factoring which is
reflected on their respective definitions of Factoring and influenced by the development
of this centuries old business. Whilst most of them insist that a typical Factoring implies a
notification clause to the debtor issuer and thus with no recourse on the seller, the recent
applications involved a non notification Factoring and also a Factoring with recourse
causing different classifications to evolve. Industry veterans insist that “Non-notification
Factoring” is not a standard Factoring, rather, it is an “Invoice discounting” and some of
professionals are calling this type of Factoring it a “silent factoring”
In line with the very old presence of the Factoring, it had gone through different phases
and limitations. For instance during the thirties of the twentieth century (Dalton; 1936)
tacked Factoring as it ideally require a debt assignment notification with the relationship
with the Factor. (Zinner; 1947) and (Byrd; 1958) classified Factoring into notification
Factoring and non-notification Factoring after arise in the demand not to notify the
buyers (Debt issuers) about the Factoring relationship. They classified Factoring products
on notification basis i.e. whether debtors are notified with the sale of the receivable or
not.
(Byrd; 1958) had a different classification for the Factoring based on the Factor’s right to
recourse; He classified Factoring accordingly into a recourse Factoring and nonrecourse
Factoring where the different from his perspective was simply a difference between
selling, in the case of nonrecourse Factoring, and borrowing in the case of recourse
Factoring.

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After quite some time, (Wooller; 1981) suggested that in a typical Factoring a debtor is
notified that debt is assigned to the Factor thus the payment shall be made to the Factor to
discharge debt, while in the case when the debtor is unaware of the assignment such as
the case of non notification Factoring it is considered to be an invoice discounting not a
typical Factoring. In another word he believed that Factoring has to be on notification
basis otherwise it is not a standard Factoring.
Recently, (Soufani; 2002) and (Deacon& Whale; 2004) linked the two classifications of
Factoring (Notification and right of Factor to Recourse), they argued that "despite its
early foundation, Factoring has been ignored as a source of corporate finance this why
some companies may not favor to Factor its receivables to avoid notifying its customer
2
.
This is in our hypothesis is tested whether the Factor is seen by the companies as a sign
of strength or weakness.
Overcoming this obstacle, the notification and the negative reputation of the factoring,
encouraged a subsequent development of invoice discounting on a non-notification basis,
against ledger of sales, so-called "Non-notification-Factoring". They explained the
mechanism of non-notification Factoring through making advance only on the security of
receivables, as the seller checks his own credit and bears probably credit losses and thus
do his own collection and ledgering then turn on the proceeds in their original form to the
lender.
It may be noted that the flaws (in the eyes of lender) behind this kind of credit “Non-
notification Factoring” is the risk fraud, mainly assignment of factious accounts, failure
to make delivery, a fraudulent and forged delivery receipt and failure to turn over the
proceeds of collection presented. The high risk associated to non-notification Factoring
created a need to change the genuine structure and business model in which Factors had
used to operate for centuries. That came up with a real need to claim against company's
customer in the event of default of its buyer, the debtor, this practice is known as
”recourse".
2
This point synchronizes with our hypothesis that large corporates avoid to notify the debtors about the Factoring which comes in
line with our hypothesis that Factoring is a sigh of weakness.

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Recourse Factoring is a typical asset based lending “ABL” where assets are used as a
collateral for the loan while title and risk remains with the seller unlike nonrecourse
Factoring whereby assets are sold to the Factor as that title and risk passed to him
(Weisel, Harm& Bradley; 2003).
The disadvantage of recourse Factoring actually offset all the accounting benefits gained
from selling the receivables on nonrecourse basis, which enhances the cash flow and
treated as off-balance sheet finance whereas recourse Factoring is a standard asset based
lending such as commercial banking practices (Marti, Duchac & Lindley; 2001).
In conclusion, recourse Factoring entails Factors to claim the money from the "borrower"
in the event of default of payment from their customers, while nonrecourse Factoring
doesn’t give the Factor the right to claim the money in the event of default, Factors
thereby become a purchaser of debt and their client's status becomes a seller of debt
rather than being a borrower (Soufani; 2002).
(Levy; 2007) denied any link between the need for nonrecourse Factoring and the
financial strength of the seller (Borrower) as it only considers the status and credit
worthiness and financial strength of the debt issuer debtor (seller's customer). It may be
noted that that at any case the nonpayment because of performance related issues or
dispute because of defects, quality, product description,…,etc is however still charged
back by Factors to the seller (Mian& Smith;1992).
A completely different classification of Factoring was added by (Hubbard; 1987)
considering the credit protection function rendered by Factors. In addition to the regular
classification on notification basis, he classified Factoring into a "maturity factoring" and
"discounting Factoring". In maturity Factoring the customer only expects to receive the
full payment of the invoice in maturity date capitalizing on the credit protection given by
Factor whereas in discounting Factoring he receive a sight payment, as a discount,
against assignment of the invoice to the Factor. Hubbard hence added a so-called
"Overadvance Factoring" which implies financing of customer's inventory (purchases) in
anticipation of a assigning of future receivable will be created after sale of this inventory.
This practice ideally suits business with seasonal purchases/sales.

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From the above definitions and classifications in the previous literatures, it is obvious that
previous research suggested the following:
1) Factoring scope is mainly oriented to the finance function despite its extended range
of services.
2) Factoring is more suitable to SMEs rather than to the large corporates.
3) Factoring is a sign of weakness and therefore seen by CFOs as an alternative finance
option.
1.4.3 How do Factors work? The mechanism of Factoring
Workflow in Factoring companies seems to be of a very old culture and standardized
amongst the industry. (Dalton; 1936), (Silverman; 1949), (Soufani; 2002), and (Levy;
2007). Summarized the mechanism of invoice Factoring as explained hereunder:
1) The beneficiary receives sales order then supplies goods and issues the invoice.
2) Supplying firm (beneficiary) request financing and provide the debtor (Buyer) book
"Sales ledger".
3) Factor advance cash against invoice.
4) Buyer (Debtor of Factor's Customer) is expected to make payment to the Factoring
firm within the pre-specified period of time, as written on the invoice.
5) Factoring company charges fees and interest to its customer.
6) Shall customer's firm default on payment, Factors shall not claim against its customer,
ideally in the event of nonrecourse Factoring.
(Ittleson;1978) hence wrote about the structure which links Factors together, being the
legislative body organizing the international trade and facilitate communication between
member Factors around the world, Factoring Chain International (FCI). As explained
above, it coordinates and organizes the communication between different member
Factors worldwide. Each member company (Factor) is hence required to have a reliable
financial backing through bank, insurance company or other financial institution.

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To promote competitiveness in the industry, FCI encourages the presence of more than
one Factor in each country. Foreign Credit Insurance Association (FCIA) is another
administrative body; it is a private organization of insurance underwriters affiliated with
US export-Import Bank and provides insurance against commercial and political credit
risks for companies involved in foreign trade.
1.5 Difference between Factoring and traditional banking practices
Factoring technical scope and criteria of doing business is marginally different from the
way traditional banking is being done. (Dalton; 1936) verified Factors from banks on
acceptance of deposit basis, as Factors ideally do not accept deposits; alternatively, they
secure finance through commercial banks. Factors thereby guarantee to commercial
banks financing a broad class of companies which banks can be not prepared or equipped
to finance. Furthermore, commercial banks do not guarantee credit, unlike Factors which
credit guarantee is one of the core functions.
(Silverman; 1949) stated that difference between Factoring and banks lies only in both
the notification as banks do not notify debtors unlike Factors thus banks usually take
recourse against its customers in event of default while Factors ideally do not.
Furthermore, unlike commercial banks, Factors do not stipulate customer to leave fund
on deposit as a provision, usually known as margin. Obviously this difference was since
influenced by the scope of Factoring and its historical limitations which no longer exist in
today’s world and recent applications of Factoring. (Byrd; 1958) Found that banks often
have stricter credit standards than those of Factors, this is of course is reflected in lesser
pricing usually offered by commercial banks.
(Rea, Chilton, Crandall, Fagerberg, Goldberg, Greene, et al.; 1980) referred to Factors'
practice in US to accept of payment of interest to customers who leave the fund beyond
the maturity date i.e. after collection of receivables, this practice proven to help in
reducing Factor's weighted average cost of fund as it may pay interest to credit customers
more it usually pays to other sources of fund, mainly lenders like commercial banks.

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1.6 Understanding the relationship between Factoring and commercial banks
There is actually a sort of overlapping relation between banks and Factors, banks may get
into Factoring business for several reasons:
1) Relatively stable business
2) Higher return than this of commercial banking business due to higher associated risk.
3) Factored accounts receivable provide source for future customers either for loan or
deposit business.
4) Banking entry to Factoring business entails them to gain a portion of the industry,
though indirectly.
5) Banks thereby also get men skilled in acquisition, supervision, and collection of high-
risk commercial accounts into bank managerial ranks, men who can handle these
types of exposure. This skilled labor may well provide the know-how for a
subsequent extension of lending to customers who were previously only able to
access credit from finance companies.
6) Banks are also indirectly involved in financing high-risk and small companies
through financing of Factors which may accept to lend such kind of customers upon
fulfilling of Factoring criteria.
7) Shall not banks keep up with the dynamically changing business environment; they
will obviously get out of business. The telecommunication giant Ericsson transferred
its Chinese business from Chinese banks to Citibank (China) in March 2002, mainly
because of lacking of Factoring by Chinese banks. Financial innovation is very
essential to accommodate high quality international accounts and to keep up with the
increasing completion in the banking business at the wake of liberalizing financial
services sector in most of the countries all over the globe (Bin, Locke& Willette;
2003).

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Few Factors are still independently owned (Nearly 7%). Bank owned ones are larger in
terms of turnover and employees. They now account for more than 93% of total market
turnover. Most of UK banking institutions are currently providing Factoring service
(Soufani; 2002).
Large Factoring companies, supported by banks, enjoy economies of scale and cost
advantage in accessing information therefore they can engage in larger exposure and get
more diverse client base. Banks thereby have superficially taken over the Factoring
business due to their wide, though indirect, control over the Factoring now (Kerr; 1981).
Banks on the other hand are ideally still reluctant to finance SMEs (Irwin; 2006) or to
extend self liquidating line of credit to submarginal application of those of no credit
history, poor earnings, or weak financial ratios (Shay& Greer; 1968) It is estimated that
banks finance only 8% of working capital requirements and just 6% of new investment
requirements of SMEs, whereas the most effective method to finance their need is the
"formation of dedicated channels for this activity". Importance of Factoring to banks has
hence evolved, some leading banks ventured into Factoring, mainly by acquisition.
It may be noted herein that (Irwin; 2006) reinforces our hypothesis that Factoring is more
linked to finance the SMEs than banks. It also comes to refers to an implicit linkage
between the factoring and the low credit rating which also suggests that factoring is a
sign of weakness and an alternative finance to those having a restricted access to bank
credit.

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Chapter (2) Factoring: A sign of strength or a sign of weakness
2.1 Determinant of the Factoring decision
2.1.1 Typical industries usually associated to Factoring business.
In an attempt to find a linkage between the company’s business/industry and its decision
to factor its receivables (Zinner; 1947) identified textile industry as the main industry
associated to any Factor while (Silverman; 1949) added furniture, appliances and
equipment industries to textile as a major interplaying partner to Factors and further
extended the scope to cover businesses with seasonal sales such as summer and winter
sportswear, bathing suit, and rubber as typical industries inclining to Factor their
receivables. (Byrd; 1958) found that Factoring is relevant to any industry which structure
consists of many manufacturers selling to many retailers and with significant overlapping
of those retail customers between the producers (That entails Factors to cost advantage to
investigate credit worthiness of the main issuers of trade debts-retailers- in this industry).
Over the time Factors have developed their traditional scope of Factoring and added new
lines of businesses in addition to textile and allied fields as furniture, shoes, toys, lumber,
and metal products became valid segments with which Factors started to intimate with
(Shay& Greer; 1968). In line with the technological reform in late seventies (Ittleson;
1978) added hardware, plastics, and other consumer goods to the segment industries fit to
scope of Factoring. During the practitioner forum, Rea, Chilton, Crandall, Fagerberg,
Goldberg, Greene, et al. (1980) reaffirmed that Factoring was traditionally a mean of
financing certain industries, such as textile, apparel and furniture, and carpet, houseware,
marine products, paints hardware, plastics, metal products, toys, and sport goods, while
defined typical business fits to Factoring as manufacturers, converters, assemblers,
material fabrication, and finished products producers. (Kerr; 1981) Scoped anything sold
in retail and service businesses as Factorable ones. Also (Hubbard; 1987) and FCI added
consumer electronics to the list of industries associated to Factoring while textiles,
clothing and electronics have remained to be the most popular industries, however
manufacturers of industrial and farm equipment, office equipment and processed food are

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increasingly turning to Factoring. Finally (Levy; 2007) has further suggested security
firms as typical customer for Factoring.
2.1.2 Common criteria affecting a firm’s decision to factor/discount its receivables
Many Factors are common amongst the companies which decided to Factor its
receivables. It is important to understand why a company would resort to the Factoring
option which will also be taken as evidence whether the Factoring is a sign of weakness
or strength. According to the literature, the below criteria are key determinants to better
group and also understand the motives behind a company decision whether or not to
Factor/discount its receivables.
1) Company size (turnover, number of employees, capital) as the Factoring in large,
according to the literature, is suitable to SMEs.
2) Company’s sector.
3) Management’s professionalism and ownership structure.
4) Seasonality of sales
5) Other supplier's cash flow (Sufficiency of trade credit).
6) Financial healthiness, growth rate.
7) Compliance to certain covenants and financial reporting,
8) Distressed companies which need a quick fix.
9) Access to bank credit client’s years in the market
(Hillyer; 1939) had suggested that SMEs makes up the major market for Factors while
(Zinner; 1947) reiterated this argument and confirmed that Factoring business is devoted
largely to serving SMEs. He further added that Factoring decision, as taken by the
Factors being the supply side, is highly correlated to set of criteria being turnover,

20 | P a g e
product, sector, age, customer (Debtor), management, operational sustainability,
profitability, collectability, credit instrument underlying the debt (Credit notes for
instance), and less correlated to other determinants, though still being considered, such as
company's size (No of employees), and the financial statements
( Byrd; 1958) stated that Factor are evidenced to be mainly used by SMEs, while Factors
hence claim to be the ideal finance solution to those firms characterized by being new,
fast growing and capital intensive or innovative ones and those which face sales
seasonality. He mentioned that covenants usually accepted by Factors as a sort of comfort
are authorization to inspect borrower's book upon demand, supporting documents such as
original invoices, or signed receipt from shipping company or the buyer may be also
needed. Through his study, he overcame the limitation of Factors a in case of a firm
selling to small outlets and retailers it will usually have a huge number of invoices with
small dollar value. This situation soar the finance burden cost significantly up because of
increasing administrative costs.
During the practitioner forum (Rea, Chilton, Crandall, Fagerberg, Goldberg, Greene, et
al; 1980) concurred the fact that while Factors would opt to bank with companies with
reasonable working capital, sound financials, experienced management with "growth
potential".
(Smith& Schnunker; 1994) dissented any significant correlation between seasonality of
sales, firm size, and other supplier's cash flow, and firm's decision whether to Factor or
not. They only linked Factoring likelihood to transaction cost variables (Including cost of
information) and other variable describing distribution channel. In contrast (Soufani;
2000) found that firm's size, age, sector, and ownership structure company are amongst
the determinants positively correlated the decision to Factor company's receivables.
The obvious contradict between Smith and Schnuker's conclusion, and Soufani's one is
that the earlier examined the determinants affect the Factoring decision from company's
point of view, the demand side, whereas the later investigated this decision from the
Factors' perspective, being the supply side. (Asselbergh; 2002) solved this debate and
concluded that Factoring will be sought by those SMEs which are new, facing huge

21 | P a g e
capital expenditure, and seasonality of sales. As a matter of fact this debate is mainly the
core of our research.
(Levy; 2007) demonstrated more sophisticated model to understand the motives behind
company's decision to resort to Factoring being those companies having one of the
following criteria
1) Companies need to expedite its cash flow to finance its growth or to comply with
certain covenants and financial reporting.
2) Distressed companies which need a quick fix.
3) New firms no yet established may be under bargain power from both suppliers (Short
or no trade credit), and buyers (extended trade debt) bearing in mind the limited
resources, mainly working capital, ideally available to new companies, together with the
difficult access to bank credit, Factoring receivables will be a feasible and ideal solution
to weather this standstill. This model reiterates our hypothesis and reaffirms the
prevailing perception of Factoring being a sign of weaknesses or at least to only intimate
to smaller size and not credit worthy customers
(Miller; 2009) concluded that client with less than two years in the market or with low
credit scoring are typical customers for Factors, that was based on the assumption that the
basis while assessing customer's from Factoring perspective is only customer's ability to
pay unlike banks which have more sophisticated considerations while doing the credit
assessment. He referred to the fact that Factors don’t lend money, they buy a portion of
small business's assets that is the accounts receivables.
2.2 Advantage of Factoring:
1) One of the greatest problems facing exporters is the increasing insistence by importers
that trade be conducted on open account terms (Shay& Greer; 1968). This often means
that payment is received many weeks or even months after delivery (FCI website).
2) Through the export Factoring, which is to sell the overseas sale invoices; Factors
(Ittleson; 1978) facilitates exporting on open account basis (Import Factoring allow

22 | P a g e
importers to import on open account basis too), it protects customer from foreign trade
risks, mainly currency devaluation, and default/ delayed payments risks, it contribute to
expand company's overall business in terms of turnover and customer base, it also
enhances company's cash flow and credit investigation costs.
3) Factoring shall also free company's management to focus more on basic areas of
business such as production and marketing through outsourcing the credit investigation
and collection tasks to Factors.
4) One more advantage is realizing that customer's company has a Factor's support help
its credit standing with suppliers. Additionally, Factorability of company's receivables
adds some sort of financial stability to which the company may resort during tough time.
This is seen by some CFOs to as one valid reason to deny that factoring is a sign of
weakness.
5) Many customers look to Factors for more than financing services. Due to their deeply
rooted experience in certain industries, Factors are oftenly called by customers to offer
counseling on both financial and managerial problems, including acquisition, capital
raise, and internal reorganization. Besides, such as Forfaiting, Nonrecourse Factoring
could also eliminate the credit concentration with one buyer (Krahmer; 1990).
6) A rather new advantage of Factoring is its validity as a solution to those firms facing
underinvestment problems while being under restrictions, like those of covenant
agreements, to extend their borrowing, for instance, those companies under an agreement
which ceils their debt-to-equity ratio or a company under a financial distress.
7) Factoring can also provide a collateral for loan which may not otherwise be available
to the company in addition to its positive correlation to the volume of sales as that
increasing financing needs at the wake of increasing sales can be fulfilled through
financing the resulting AR (Ulrich; 1978).

23 | P a g e
2.3 Factoring as a finance alternative to grow the SMEs
SMEs are very important and widely deemed to be the backbone behind a sustainable and
invulnerable economic growth (Irwin; 2006). In developed nations, it accounts for 99%
or more of all firms. They are characterized by being flexible, innovative and responsive.
They incline to be more productive. Furthermore, creation of more SMEs enables nations
to grow a firm middle class. Despite SMEs' renown essence and role to enhance the
competition to the economy, job creation, boost company-wide efficiency, growth,
innovation and poverty alleviation (World bank website), SMEs are still suffering from
lack of finance. Factors hence evolved to bridge this gap; they mainly segment SMEs
(FCI website). As a matter of fact SMEs of turnover less than GPB 3M are the major
segment behind growth of the Factoring business in UK. (Soufani;1999).
Commercial banks are usually reluctant to finance SMEs. It is estimated that banks
finance only 8% of working capital requirements and just 6% of new investment
requirements of SMEs. (Pino; 2004) suggested that the most effective method to finance
the needs of SMEs is the "formation of dedicated channels for this activity". Banks have
been hence indirectly engaged in financing those companies through financing of Factors
which may accept to lend such kind of customers upon fulfilling of other criteria. In
another word, while banks are ideally hesitant to extend self liquidating line of credit to
sub marginal application of small size (Shay& Greer; 1968), no credit history, poor
earnings, or weak financial ratios they do it through Factors, most of UK banking
institutions are currently providing Factoring service (Soufani; 2002).
2.4 Factoring: A sign of strength or weakness?
Banking with Factors has been always a controversial decision. Some companies do not
even know what Factoring is all about. Most of the researchers and industry veterans, in
our opinion, already agreed upon the weakness status of companies which use to bank
with Factors under the impression and reputation of Factoring being an alternative
finance or the last resort to get the finance. This is not a new understanding or conclusion
it is an old perception. We however will still test it in our study.

24 | P a g e
For instance: (Silverman;1949). Affirmed that many businessmen perceive Factoring as a
sign of weakness, whereas (Rea, Chilton, Crandall, Fagerberg, Goldberg, Green, et
al.;1980) assured the perception of Factoring being the last resort for client's financing
needs. (Robichek, Teichroew & Jones; 1965) clearly stated that Factoring is a sign of
weakness and did not consider it amongst efficient sources of short term finance as it is
usually less desirable; they added that it is not used in practice unless it is the only
available alternative.
To investigate this argument (Hubbard, K. ;1987) found that only 3% of companies
which sales range between USD 5-200 Million were using Factoring in a survey done on
US market, whilst 80% of the respondents did not even know what Factoring was. He
attributed this finding to communication problems or marketing inefficiency. For
instance, Factors can market themselves as a cheaper alternative to costly bookkeeping,
collection, and credit costs. (Soufani; 2002) found that company’s deciding to resort to
Factoring are those facing difficulties to obtain finance through traditional banking
services while companies with cost advantage and market power are less likely to use
Factoring. Likewise, (Deacon& Whale; 2004) translated the ignorance of Factoring as a
source of corporate finance, despite its early foundation, into being a sign of weakness.
Whereas some companies may not favor to Factor its receivables to avoid notifying its
customer (Factors oftenly require a debt assignment notification) with the relationship
with the Factor. This encouraged the subsequent development of invoice discounting on
non-notification basis (Against ledger of sales).
Against these arguments; (Ittleson;1978) stood reluctant to that consensus belief about
Factoring and hence stated that- in contrast- many customers look to Factors for more
than financing services. Due to Factors' deeply rooted experience in certain industries,
they are oftenly called by customers to offer counseling on both financial and managerial
problems, including acquisition, capital raising, and internal reorganization. (Asselbergh;
2002) also denied that signal of weakness; he stated that Factoring is not a sign of
weakness despite companies which Factor their receivables are usually less profitable and
denied its perception as the last resort for finance. (Weisel, Harm& Bradley; 2003)
insisted that Factors get themselves allied to growth companies unlike the traditional
perception about Factoring to be associated to companies expected to go out of business.

25 | P a g e
2.5 Global trends in invoice discounting and Factoring
Modern applications of invoice discounting and factoring are Forfaiting and
Securitization. To explain the difference between securitization and Factoring (Palia&
Sopranzetti; 2004) underlined the described a typical Factoring when the company sells
the invoice to Factors, while in securitization the firm may only sell a portion of the
receivable. Furthermore, securitization arrangement commonly does not have the facility
to perform on-going monitoring of underlying receivables, this task is ideally being done
by the borrower, in contrast to the Factoring who is undertaking this function and can
even outperform the company in so doing due to its specialized credit management
department and expertise. One other modern application of Factoring is the Forfaiting
(Krahmer; 1990) which is commonly used to finance exports worldwide which
advantage, such like Factoring, can also minimize the credit concentration with one
buyer. However, it is more of long-term finance which has more focus on financing of
capital assets.

26 | P a g e
Chapter (3) RESEARCH METHODOLOGIES
3.1 Introduction
There is no sufficient material or data in the Egyptian Market to quantitatively test our
hypothesis where the factoring business has been recently introduced, so the research
used the qualitative content analysis, inductive approach, to better understand and test our
hypothesis (Elo S. & Kyngas H ; 2008). We favored this method as a valid mean to
provide a new presentation and a thorough view of the Factoring business in Egypt and to
test apply the theoretical framework collected and concluded from our literature review.
Results and conclusions thereby are categorized and grouped according to our own
modeling and conceptual mapping in accordance to our understanding of the theories and
literature. We converted the results of the interview into a written text in accordance to
the usual data preparation step commonly followed in the qualitative content analysis
(Zhang Y. & Wildemuth B. M.; 2009).
3.2 Hypotheses
The research is based and interviews thus made to test the following hypothesis:
H1: Factoring is having an unfavorable image by CFOs and seen as a sign of weakness.
i.e. there is a linear relationship between company’s financial strength and its decision
whether or not to factor its receivables.
H2: Factoring is an alternative finance sought by companies having a restricted access
to bank finance.
H3: Factoring is geared to serve the SMEs more than the corporate clients.
H4: Factoring is more suited to those companies involved in the international trade.
3.2 Sample and population
The managers responsible for the finance decision making of 15 firms which were
offered the Factoring/Invoice discounting credit were interviewed. The firms were

27 | P a g e
randomly selected out of Egypt Factors records (The only licensed Factoring Company in
Egypt) meeting the following criteria.
1) Continued relationship with the client as to accept to dedicate nearly 90 minutes for
an interview and to divulge some confidential information. Some of the CFOs/CEOs
refused to cooperate noting that all of them had refused the Factoring offer for
different reasons.
2) Selected companies were approved and contacted at the first place according to Egypt
Factors criteria (Sales more than EGP20M, 3 years in business, reasonable credit
profile and good reputation in the respective market) Accordingly, the population is
limited to those companies which were offered the Factoring not all the companies
which may have needed the Factoring (There is still a probability that some
companies needed the Factoring but did not meet Egypt Factors above set criteria).
3) The interviewer has a good experience with the business of those companies which is
noted in his feedback/comments, against managers’ feedback, as to validate the
response of the CFOs against his personal understanding.
It may be noted that Egypt Factors data base contains 231 companies of which only
39 companies accepted to cooperate. The selected companies (15 companies) were
those companies representing the most possible diversified backgrounds (Size,
business, export, financial position, its decision to factor/not to factor,…,etc) plus the
fact that only those companies agreed to divulge their financial figures and publish
the results of their interviews.
Accordingly the sampling method is the convenient sampling which has some
limitations to generalize its conclusions.
3.4 Interviews
Companies were asked different questions and preplanned discussions were opened with
the managers while questioning the below points:
General Data
a. Company size (Sales, No. of employees, legal entity, capital).
b. Management knowledge (Education, experience, company’s length in business).

28 | P a g e
c. Type of business.
d. Managers’ understanding of banking and non banking financial institutions in general
and Factors in specific.
Management
a. Familiarity of Factoring and types of Factoring Notification vs. Non notification, or
recourse vs. without recourse.
b. Identification of the relationship between the Factors and commercial banks.
c. Understanding the difference between the Factors and types of receivable discounting
(Credit insurance, Forfaiting, securitization, invoice discounting).
Liquidity
a. Direct question about company’s liquidity position.
b. Accessibility to bank finance.
c. Percentage of utilization of available bank credit.
d. Commercial credit granted from suppliers, as a significant cause of operating cash
inflow.
e. Growth rate, commercial credit granted to customers, inventory levels, as a
significant cause of operating cash out flow.
Factoring
a. The reason why the company agreed/refused to Factor its receivables (With recourse
or without recourse).
b. Factoring image; a sign of weakness or a sign of strength and why?
c. Factoring is more suitable to SMEs or large corporates (Sales more than EGP180M).
d. Factoring is more suited to international trade or domestic business.
e. Whether the company prefers notification factoring or non-notification factoring.
f. Whether Factoring is a primary source of finance or a secondary source of finance.

29 | P a g e

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Chapter (4) Results and Limitations
4.1 Results
Result of the study shows the following:
1) Most of the companies (14 out of 15) had the liquidity squeeze amongst the first
driver of its decision to discount its receivables, either with recourse or without
recourse.
2) All the companies, with no exception, criticized the high factoring costs compared to
the cost of the traditional bank lending. The high cost of Factoring, according to our
study, is a key reason why the company accepts or refuses the factoring offer. We
conclude that the Egyptian market mainly considers the finance function on the top of
the other services offered by Factors (Debt protection, collection, …,etc). As a matter
of fact this finding comes with the consensus definition of factoring according to the
literature.
3) There is no clear answer whether the factoring is a sign of weakness or a sign of
strength. CFOs had different views of Factoring. Despite none of them denied the
negative perception of Factoring as a sign of weakness by the market itself they
however found no linear relationship between company’s decision of Factoring and
its financial strength. According to the study, the reason why the company seeks the
factoring is the indication of its strength or weakness therefore there is no direct
relationship between the factoring decision and the strength or weakness. For
instance, liquidity is always the reason for external finance. If the liquidity is sought
for a better asset-liability-management or to enhance the return to shareholder or if
the liquidity issue is because of the accelerated growth it would be considered a sign
of strength also in case the company factors the receivables because its investments in
the inventory (To start a new business cycle) is more profitable than investments in
the accounts receivable that can be considered a sign of strength. i.e. the cost of
finance is less than the gross margin. But, in case a company factors the receivables

31 | P a g e
and accepts a higher than average costs of finance, as the case in the factoring,
because it has no other source that will be a sign of weakness according to the study.
4) Factoring is an alternative finance in the eyes of the Egyptian companies. However,
some of the companies looked at factoring simply as a new style of finance not
necessary an alternative to the traditional banking finance.
5) Factoring is a smart finance solution to SMEs it is however equally relevant to both
large corporates and SMEs. It is all a matter of company’s ability to make a sufficient
profit to cover the high finance cost of factoring.
6) Factoring is better geared to serve the companies with exposure to the international
trade as they can take the most out of its different services, mainly the credit
insurance/debt protection.
4.2 Limitation of the research
1) The usual limitations of the qualitative research as the data analysis was based on the
understanding and judgment of the interviewer, myself, which still does not
completely eliminate the personal bias or unintentional direction of the information to
serve a certain conclusion. However, on the other hands, the wide number of the
companies and diversified backgrounds and the results of the research itself proved
otherwise where tow out of four hypothesis were rejected.
2) Interviewed companies are all fall under Egypt Factors criteria which certainly
excludes another segment out of the population which feedback or needs may change
the overall conclusion.
3) Debt protection is restricted in the local market due the absence of information and
credit insurers. It is therefore only presented to exporters in large. This fact can be a
reason why the interviewed companies didn’t highly value this option as they were

32 | P a g e
never offered in the domestic market (Unless for Multinationals which usually needed
it for financial compliance only).
4) The research didn’t properly consider all the important independent variables which
can yet overlap and influence company’s decision to factor or not its receivables like
the degree of awareness, type of industry, proper marketing of the service.
5) This research gives didn’t pay enough attention to the other factors affect the decision
from the supply side “The factors”. For instance some companies may have needed
the factoring but refused at first place by the factors themselves.

33 | P a g e
Chapter (5) Recommendations
1) Banks are usually hesitant to lend those firms achieving losses because of producing
below breakeven point even those achieving highly decent profit margin. This attitude
can borne banks to a deadlock situation when one of those firms is amongst its
existing borrowers. Factors as ABL (Asset Backed Lender) can bridge this gap and
intimate with commercial banks, especially with the non-performing loans divisions,
to assist in floating (Financing) the customers which potential business model and
positive contribution margin. This can be done on a transaction-by-transaction basis
and comes in line with Factors interest in the performance of the beneficiary and
buying of quality receivables. On due course, resultant profit (Contribution margin),
can be transferred to lending banks, after recovering of Factor's fees and direct costs
of the producer (borrower). This practice can open up new routes for commercial
banks to outsource part of its recovery process to Factoring companies in a win-win
basis and duly establish a business niche for Factors to operate and integrate with
commercial banks.
2) Another integral business could be the collection service rendered by Factors; a
known practice of commercial banks is to request routing borrower’s receivables
through its channels as a covenant for financing of working capital. Factors have the
advantage and resources of both collection services, client management of borrower's
customers. They additionally have the expertise and convenience to check borrower’s
ledgers unlike commercial banks which use other less efficient ways to verify
customer's compliance because of lack of appropriate resources to check their sales
ledgers.
3) Factoring can cooperate with commercial banks to provide collateral for loans and
thus manage the borrower’s receivable portfolio to the account of the lending bank.
For instance, banks traditionally keep their eyes away from certain type businesses
and services. They do not usually finance high risk industries such as movies,

34 | P a g e
advertisement; startup business is also unlikely to get an easy finance approval from a
commercial bank. This is due to banks' interest in overall borrower's performance as a
going concern whilst risks associated with those types of business might borne
customers to business risks above bank's risk tolerance. Factors can underwrite the
finance of this business upon presence of existing demand over the products
regardless the other risks may escort the business, they are simple receivables
financers. Conclusively, banks can outsource such type of finance to Factors which
will bear the systematic risk associated with the business while banks can indirectly
finance this business through financing the Factor itself.
4) Factors hence need to adapt more to the changing market environment and business
needs. They need to be more innovative and responsive. Product development has
also need to be reconsidered by Factors. For instance, Islamic finance area areas
which Factors may need to develop, adapt, and eventually adopt. Also, the
documentation needed from the borrower need to ease by the factors. Factors also
need to develop smart ways to reduce its cost of fund to be more competitive.
5) Factors need to work hard to reduce its costs and issue letters of guarantees as to
extend its scope of trade finance. That will need a legislative bodies to sponsor this
practice and thus to switch the Factors to be more of trade fiancé houses or a full
fledge commercial financers which will ultimately boost the local economic
activities.
6) Factor can also present the risk rating services to foreign suppliers and domestic
banks especially to the SMEs segment which commercial banks are hesitant to
penetrate.

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References:
Asselbergh, G. (2002). Financing firms with restricted access to financial markets: the
use of trade credit and Factoring in Belgium. European Journal of Finance, 8(1),
2-20.
Bin, J., Locke, P., & Willette, W. (2003). Picking up the gauntlet: Bank competition in
China after World Trade Organization entry. Journal of International Banking
Regulation, 4(3), 247.
Dalton, J. (1936). Factoring. Harvard Business Review, 14(2), 186-199.
Deacon, T., & Whale, M. (2004). When is Invoice Discounting not Invoice Discounting?.
Credit Control, 25(7), 29-31
Elo S. & Kyngas H. (2008). The qualitative content analysis process. Journal of
advanced nursing 62(1), 107-115.
Hillyer, W. (1939). Four centuries of Factoring. Quarterly Journal of Economics, 53(2),
305-311.
Hubbard, K. (1987). Factors' image: underexposed. ABA Banking Journal, 79(11), 72.
Irwin, D. (2006). Chapter 1: Financing entrepreneurship at the regional and local level in
South East Europe. OECD Papers, 6(12), 14-42.
Ittleson, H. (1978). Factoring: Opening new routes in international trade. Management
Review, 67(9), 48.
Krahmer, E. (1990). Forfaiting: The European Edge in Trade Finance. International
Executive, 31(4), 17-18.
Levy, E. (2007). Shining a Light on a Niche Area of Financing in the Current Credit
Market. Secured Lender, 63(6), 50-62.
Mian, S., & Smith Jr., C. (1992). Accounts Receivable Management Policy: Theory and
Evidence. Journal of Finance, 47(1), 169-200.
Miller, C. (2009). Factoring can be a option when traditional financing isn't. Hudson
Valley Business Journal, 19(13), 2.
Palia, D., & Sopranzetti, B. (2004). Securitizing Accounts Receivable. Review of
Quantitative Finance & Accounting, 22(1), 29-38.

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Rea, R., Chilton, J., Crandall, A., Fagerberg, J., Goldberg, D., Greene, G., et al. (1980).
Practitioners Forum. Journal of Accountancy, 150(6), 22-34.
Robichek, A., Teichroew, D., & Jones, J. (1965). Optimal short term financing decision.
Management Science, 12(1), 1-36.
Silverman, H. (1949). Factoring as a financing device. Harvard Business Review, 27(5),
594-611.
Shay, R., & Greer, C. (1968). Banks move into high-risk commercial financing. Harvard
Business Review, 46(6), 149-161.
Soufani, K. (2002). The Decision to Finance Accounts Receivable: The Factoring Option.
Managerial & Decision Economics, 23(1), 21-32.
Ulrich, T. (1978). Financing via accounts receivable. Journal of Small Business
Management, 16(2), 10-13.
V., K. (2005). Metamorphosis of marketing financial services in India. Journal of
Services Research, 5(1), 155-169.
Weisel, J., Harm, N., & Bradley, C. (2003). The Cash Factor. Strategic Finance, 85(3),
29-33.
Zhang, Y. , & Wildemuth, B. M. (2009). Qualitative analysis of content. In B. Wildemuth
(Ed.), Applications of Social Research Methods to Questions in Information and
Library Science (pp.308-319).
Zinner, S. (1947). The Contribution Of Commercial Receivable Companies And Factors
To Financing Small- And Medium-Sized Business. Journal of Finance, 2(1), 76-
90.
(1981). Factoring changes slowly--but it is changing. ABA Banking Journal, 73(12), 92.

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Appendix
The interviews
We used the below bands in the table 3-1 to code the variables of the interviews as shown
below.
Codes (Table 3-1)
Band
Growth
Governance
Liquidity
Cash Cycle
International
trade
Degree of
Awareness
of Factoring
1
More than 20%
Corporate-MNC
High
Less than 30days
More than 70%
Professional
2
5%-20%
Corporate-National
Moderate
30-60
50%-70%
Advanced
3
Less than 5%
MID Cap-Domestic
Marginal
60-120
30%-50%
Modern
4
Static
Family run corp.
Low
120-180
10%-30%
Basic
5
Declining
One man show style
Distress
More than 180
Less than 10%
Nothing
Table 3-2 below describes the classification of each of the interviewed companies against
the independent variables.
Results of the interview (Table 3-2)
Company
Governance
(1-5)
SMEs/Corporate
Liquidity
Growth
Cash
Cycle
Present finance
International
trade
Nourmidas
4*
SMEs
3
4
5
Equity
4
Enjoy
2
Corporate
5
5
2
Past dues
4
Egyplast
3
SMEs
2
1
3
Banks
3
Olympic group
1
Corporate
1
2
3
Equity/
Suppliers
4
ASEC
3
Corporate
4
5
3
Equity/
Banks
4
Subsea Maritime
4
SMEs
3
2
1
Equity/
Banks
1
TransAfrica
4
SMEs
5
2
2
Past dues
1
Albaddar Packing
3
Corporate
5
4
3
Past dues
4
PPT
3
SMEs
4
1
4
Banks
3
SAPESCO
2
Corporate
4
2
5
Banks/
Suppliers
4
Dytex
2
Corporate
4
2
4
Equity/
Banks
1
Alkan
group
2
Corporate
4
1
4
Suppliers/Banks
2
Alamriya casting
2
Corporate
5
4
3
Past dues
4

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Alzhour
5
SMEs
4
1
5
Factoring
4
MAC carpets
2
Corporate
2
2
4
Banks/
Factoring
2
Table 3-3 summarizes the results of the interviews against the dependent variables.
Table (3-3)
Company
Degree of
Awareness
Of Factoring
Reason for
Factoring
For domestic or
int. trade
To finance
SMEs or
Corporate
Alternative
finance
Sign of
strength or
weakness
Nourmidas
3
Liquidity
International
No relation
Yes
Depending
Enjoy
2
Liquidity
Domestic
No relation
Yes
Weakness
Egyplast
3
Liquidity
International
SMEs
Yes
Weakness
Olympic group
2
-Protection
-Compliance
International
SMEs
No
Strength
ASEC
3
Refused for
higher cost
Domestic
No relation
No
No relation
Subsea Maritime
2
-Liquidity
-Cash mgmt
International
SMEs
Yes
Depending
TransAfrica
4
Liquidity
International
SMEs
Yes
Weakness
Baddar Packing
3
Liquidity
International
Corporate
Yes
Depending
PPT
3
Liquidity
No relation
No relation
Depending
Strength
SAPESCO
4
Liquidity
International
No relation
Yes
Weakness
Dytex
2
-Liquidity
-Protection
No relation
No relation
Depending
Weakness
Alkan group
3
Liquidity
International
SMEs
Depending
No relation
Alamriya casting
3
Liquidity
No relation
No relation
Yes
No relation
Alzhour
4
Liquidity
Domestic
No relation
Depending
Strength

39 | P a g e
MAC carpets
1
- Liquidity
Protection
-Compliance
International
No relation
Yes
No relation
Table 3-4 details the results of each of the interviews.
Table 3-4
Company
Important comments from the
company
Important comments from the
researcher
Nourmidas
- After the downgrading of Egypt’s
sovereign risk, the Factors are
having a better chance to growth the
business mainly to guarantee the
local buyers to the foreign suppliers
as the foreign suppliers are now
more reluctant to grant credit to
Egyptian customers.
- Generally, Factoring is not
attractive in Egypt where the banks
are preferred due to its flexible
business model and less
involvement in operations.
- Factoring is simply a new source of
finance which can increase sales
through extending a more favorable
credit terms to the customers after
finding who can cash the resultant
receivables “The Factor”.
- Factoring can be a sign of weakness
only if you seek it for liquidity due
to restricted access to bank finance
otherwise it can be a sign of
weakness. There is no linear relation
as it is simply another style of
finance.
- Company has a one-man-show
management style and ownership.
- Company has annual sales of nearly
USD40M with a very high level of
inventory and very low financial
leverage (Company is, in large, self
financed).
- Company imports all of the raw
material and exports nearly 50% of the
sales.
- Company depends on its long
relationship with suppliers and high
level of equity to finance its working
capital.
- Company never urged or inclined to
utilize its approved Factoring facilities
which, in our opinion, due to the high
cost and sophisticated procedures.
Also, company’s conservative
management style is still unwilling to
try a new finance option other than the
traditional banking business.

40 | P a g e
- Factoring is not related to the size of
the company but more to the nature
of business itself.
Enjoy
- Company would not opt to finance
its operations through Factoring if it
has traditional bank finance. The
reason is the high cost of Factoring.
- Liquidity is the only reason why the
company factored its receivables.
- One advantage of Factoring is its
specialization in receivables unlike
banks which are overlooking the
details.
- Factoring is a sign of weakness of
course considering its high cost.
- Factoring is for both corporate and
SMEs despite SMEs will only need
finance unlike the corporates which
may avail the full service package.
- Factoring has a bad image in the
market as a sign of weakness this
why the company prefers the non-
notification factoring.
- Factoring is an alternative finance.
- The company is a subsidiary of
Citadel group (One of the largest
private equity funds in Middle East).
- The company used to have a huge
market share which has shrunk over
the years due to management and
financial problems.
- Company is having a difficulty to get
bank finance due low credit rating.
- Company’s recent management is
qualified and specialized in corporate
restructuring and re-engineering.
- Company has a critical liquidity issue
as the major suppliers stipulate an
advance payment due to low credit
rating of the company.
- Company is presently financing its
operations through the past dues to
banks and local suppliers.
Egyplast
- Factoring is an alternative finance
and the cost is the first driver for
company’s decision to factor its
receivables.
- Factoring may be relevant to those
companies with restricted access to
bank finance.
- Liquidity is company’s only motive
to consider the Factoring option.
- Factoring companies accept a higher
risk this is why it is a valid option to
those with restricted access to bank
finance.
- Factoring is a sign of weakness. It
- Company is a member of a
conglomerate which annual sales is
nearly USD50M. The group has been
achieving 2-digit growth during the
few years despite the slowdown in the
economy.
- Company has a qualified management
and a reasonable level of corporate
governance.
- Company refused to utilize its
approved factoring facility referring
the reason to the higher cost.

41 | P a g e
is more relevant to SMEs.
- Generally Factoring can work where
commercial banks hesitate to play.
Olympic group
- Liquidity is always an issue but the
company has enough sources of
finance.
- Supplier credit is not enough to
finance working capital needs
considering the nature of the
industry.
- Factoring advantage is being an off
balance sheet finance and a valid
mean to support the suppliers
through securing or discounting
their dues.
- Factoring is indirect bank finance
after all.
- Factoring is a facility to reinforce
the credit which is not offered by
the supplier as it encourage to
supplier to extend the credit with no
risk on its books.
- Factoring is an important mean for
finance but it is mainly for
protection “Without recourse”,
otherwise, the banking is the place
for finance.
- Factoring is a good mean to open
new markets especially its
specialization in the open account
trade unlike banks.
- Cost of Factoring is higher than
commercial banks which hinder its
growth.
- Factoring is a sign of strength as it
simply reflects company’s
preference to shorten the credit
tenor. Meaning that the cost of
finance thereby is the less than the
gross margin. Otherwise the
company would prefer to wait to
- Company is a lead producer of home
appliances and a subsidiary of one of
the largest groups in the word. It is
listed in the stock market.
- Company refused to utilize its
approved factoring facility without
referring to the reason. However, it is
believed that the company had
problems with the required guarantees
from the lender and some issues with
the Factoring image.
- Company has nearly USD100M total
banking limits and it only utilizes 10%
of which.
- Company’s annual sales exceeding
EGP 1Billion and a bottom line
profitability of EGP18M. The
company employees nearly 6000
employee and owning 18 factories.
- Company’s head of trade finance is
PHD in Finance.
- From the company’s feedback it is
obvious, as a large group with easy
access to bank finance and high
bargaining power, that the company
look at the Factoring more as the
option to finance suppliers or to secure
their dues for the same purpose but
doesn’t consider the option for itself
as a seller.

42 | P a g e
collect its dues.
- Factoring is more relevant to
finance SMEs as corporate can find
it easier to get bank finance.
- Factoring is more suitable to
international trade as it only justifies
the higher cost of Factoring. Only
international trade can utilize the
services rendered by Factors to the
maximum.
- Company is indifferent to notify or
not to notify its buyers if it goes for
Factoring.
- Factoring is not an alternative
finance; it is simply a very
specialized type of finance.
ASEC
- Company refused the Factoring due
to the cost compared to what is
offered by other banks.
- No relation between the choice of
Factoring and company’s strength.
It is simple one style of finance and
the only criteria are opportunity cost
and return of sales.
- No relation between the Factoring
decision and company size. The
decision however may be more
linked to the culture and
management style as the Factoring
is relatively new and unknown to
the market and the CFOs.
- Factoring is more relevant to the
domestic market where the larger
part of the investments in the
Accounts Receivables is.
- Factoring is not an alternative
finance, there is no relationship. It is
simply a different type of finance.
- Company is specialized in the
manufacturing of casted products used
by domestic and international cement
factories.
- Company exports nearly 50% of its
production.
- Company has a cash cow business
with no foreseen opportunity for
business growth which makes the cash
flow stable and constant which is
easier for financial planning and
forecast.
- Company is a subsidiary of the Citadel
group, management however, in my
opinion is not judged to be perfectly
efficient or qualified
- Company’s annual sales figure is
around USD30M and total banking
facilities is around USD10M.
- Company hasn’t utilized the approved
Factoring facilities due to the pricing
as they reported.

43 | P a g e
Subsea Maritime
- Company has a liquidity issue due
to the fast growth with no enough
internal sources to finance the
growth.
- Cost is the most important
determinant of the Factoring
decision. Cost-benefit analysis is
thereby the only way to judge the
factoring.
- Liquidity is the only reason for
Factoring.
- Factoring can be a sign of strength
if it is used, amongst other facilities,
as a cash flow management
mechanism. If it is used purely and
only for finance as an alternative to
the bank it will be logically as a sign
of weakness. So there is no clear
relation.
- Factoring is more suitable to SMEs
as the large corporates are having
different and wider range of finance
options.
- Company prefers notification
factoring as to put some sort of
pressure on the buyer and to benefit
from the collection option to
manage the debt.
- Factoring is quite unknown amongst
local business circles.
- Factoring is not an alternative
finance it is just a different type of
finance.
- Company is indirectly involved in the
oil business as it rents out vessels to
off shore oil companies to
accommodate their needs and
operations in the sea/ocean located oil
fields.
- Company has a fleet of 8 vessels of
which 3 are state-of-art technology
and equipped with the latest
navigations machines while the other
5 are operating locally due to its
outdated technology (Already fully
depreciated) and accordingly turned to
be unproductive assets and cost
drivers (Expenses of maintenance,
port, royalties, …,etc) and now
offered for sale at a residual cost.
- Company has a one man show style
management and ownership. It is
employing 620 employees with a paid
in capital of USD 26.5M and
generating sales of USD12M
annually.
- Management is experienced and
qualified.
- According to our knowledge of the
company, the reason for the liquidity
unease was not the growth but more of
an operating cash flow due to low
level of operations.
- Company is not an aggressively
utilizing of the approved factoring
facilities, in our opinion, due to a
smooth flow of collection from
overseas operations and the sufficient
short term banking facilities.
TransAfrica
- Factoring is a sign of weakness, it is
inflexible, costly and company only
decided to factor the receivables
because it has some difficulties to
get enough bank finance.
- Factoring has an unfavorable image,
- Company is a freezone establishment
and amongst largest 50 exporter in
Egypt. It presently factors its
receivables with CITIBank USA.
- Company is exporting 100% of its
production to leading international

44 | P a g e
it is an alternative finance and
company would prefer of course to
get banking facilities if it has no
troubles with lenders.
- Factoring is a sign of weakness.
- Factoring is more relevant to SMEs.
- Factoring is more relevant to
international trade of course as it is
provides good services for this
purpose like credit investigation
about the buyer and the protection
as well the finance of course.
- Factoring is unknown in the market.
- Factoring is an alternative finance.
brands e.g. Levis, JV, Gertex,…,etc)
- Company has a basic management
structure and style. It has been
weathering tough times and
accordingly has had troubles with
lenders before it came to settle it later.
Total sales figure of the company is
USD20M and employing 2000
employee.
- Company has a liquidity issue mainly
to settle the suppliers which demand
their dues in advance. It utilizes 100%
of its available bank finance which is
not sufficient to its working capital
needs.
- Company cannot change the suppliers
as they are all named by the final
customer due to quality issues. That
fact caused the profit margin to
squeeze with a high bargaining power
of both suppliers and customers.
- Company hasn’t utilized the approved
Factoring facilities due to the
disagreement on the guarantee and
pricing.
Baddar Packing
- Factoring accepts higher credit risk
and company approached the
Factoring only for liquidity.
- Factoring is not an alternative to
commercial banks, it is a different
style of financing and it should be
always there next to bank facilities
but yet it is still can be an
alternative finance or a second
resort as it accepts credit risks more
than commercial banks.
- No linear relation between a
company’s strength and its decision
to factor the accounts receivables. It
is on a case-by-case basis.
- Company is a supplier of the cartoon
to many manufacturers and the fresh
food exporters.
- Company has 500 employees and
owners equity of EGP30M with
annual sales of EGP140M.
- Company underwent financial
troubles and has some difficulties to
access the bank credit.
- Company has credit from suppliers
which is not enough to cover its
working capital needs.
- Company utilizes 100% of its
available banking credit.

45 | P a g e
- Factoring is more suitable to
multinational companies than
domestic a local firms considering
the corporate sophistication and
know-how of the multinationals
which can better utilize the different
services and packages offered by
the Factors.
- Factoring is more relevant to
companies involved in the
international trade as they would
thereby utilize the full package. In
another word, without recourse will
be more needed on a foreign client
with no direct relation so the
company will need to insure the
debt while in the local market the
company can better assess its buyers
and accepts their risks.
- Company prefers the non-
notification factoring which comes
in line with the bad image
associated to factoring as a sign of
insolvency.
- Company needs working capital
finance to finance its strategic
inventory levels.
-
PPT
- Company achieved 100% growth
over the last 3 years causing a
liquidity issue due to the accelerated
growth quicker than its sustainable
or growth capability.
- Suppliers used to support the
working capital before the
revolution but now they collect the
price in cash or sometimes even in
advance causing a stress on the
liquidity which can hinder the
growth.
- If the company has enough banking
limits it will still factor its
receivables the higher the leverage
the higher the assets the higher the
profit and ultimately the return to
shareholders.
- Factors integrate with banks, it is all
- Medium Size Company and a part of a
larger conglomerate.
- Company’s annual sales is nearly
USD 14M and employing around 350
employee.
- Company has banking facilities of
nearly USD4M and utilizes more than
90% of which.
- All company’s sales are to the local
market.
- Company has a reasonable level of
corporate governance and qualified
management.

46 | P a g e
bank’s money as a forward
integration to finance a new
segment.
- Without assignment and notification
it is not a Factoring it is an invoice
discounting.
- Factoring decision like any other
finance decision. Cost Vs. return.
This is the right view to judge
especially for companies with
growth potential.
- Factoring is a sign of strength due to
above considerations and also
having the company approved credit
facility is a certificate of due
diligence to other creditors.
- Cost the worst thing in Factoring.
- Factoring has no relation to the size
of the company either SMEs or
corporate. However, it has a
negative image in the company as a
sign of poor liquidity.
- Factoring is a secondary source of
finance and can be a main for
SMEs.
SAPESCO
- Liquidity is now an issue and banks
are reluctant to support this is why
there is now unprecedented chance
for Factors to grow in Egypt.
- The Factoring has a lot of
operational hassle unlike banks
causing it to be a secondary source
of finance.
- Factoring has an associated image
of weakness and unknown amongst
influential business circles.
- Being SMEs or corporate has
nothing to do with the company’s
decision to Factor its receivables or
not. It is all the liquidity regardless
- A leading service provider to Oil
companies with a regional presence,
decent level of corporate governance
and annual turnover exceeding
USD60M.
- Company deals with largest
commercial banks in Egypt as well as
the leading off shore banks specialized
in the Oil finance.
- Oil sector is facing a noticeable delay
of payment from the Government, the
main buyer and market maker in the
field, causing the average receivable
days outstanding to exceed 270 days
sometime. On turn, unusual financing
needs and liquidity squeeze is

47 | P a g e
the size of the company.
- SAPESCO prefers silent (Without
notification Factoring) over
notification Factoring due to market
unawareness of the business causing
the buyers to refuse to sign/accept
the assignment clause.
- Factoring is costly but liquidity is a
survival no comparison.
- Factoring is more relevant to
international trade especially the
option of the without recourse
finance.
- Factoring is an alternative finance.
overwhelming the sector in Egypt
after the revolution.
- SAPESCO has the bargaining power
to pass the high factoring cost to
suppliers and buyers.
- SAPESCO employees more than 100
employee and it is 35 years length in
business.
- Company’s previously requested non-
recourse factoring which was not
approved due to pricing disagreement.
Dytex
- Advantage of Factoring is that it
accepts a higher risk.
- Presence of the receivables itself in
the books of a company is a sort of
weakness since a company of a
higher bargaining power would be
able to negotiate a better credit
terms.
- Factoring is important to Corporates
and SMEs alike since both are
having their own credit needs.
- Non notification factoring is not a
factoring. Factoring has to go with
the notification clause.
- Factoring is very costly and if I
have another finance offer with
cheaper terms I would definitely go
for it. Cost is my first motivation.
- If Factoring is sought only for
liquidity it can’t be any indication
but a sign of weakness, otherwise
why would a company go for
Factoring.
- A textile producer with a decent level
of corporate governance. Company’s
turnover is nearly USD25M p.a.
- Company owns 3 factories and
employing 3,500 workers.
- Company is granted credit lines from
3 commercial banks with total limit of
EGP40M and utilization is exceeding
85% most of the time.
- Factoring business and different
services offered are perfectly clear to
the client.

48 | P a g e
- Factoring is not a secondary
finance. It is simply one type of
financing.
Alkan group
- Factoring is not a secondary
finance. It is simply one type of
financing.
- Company seeks Factoring only for
finance as the demand and growth is
higher than company’s ability to
fulfill.
- Company is capable to absorb any
given bank finance and if an
additional bank finance is available
Factoring will be still regarded as a
valid option as long as the cost of
Factoring is less than the return on
sales. Of course, this is subject to
high growth rate and availability of
demand. If no demand is available
so the less costly option will of
course be preferred.
- One more benefit of Factoring is
being an off balance sheet finance
which replenish company’s
financial statements in the eyes of
suppliers and other lenders.
- Factoring for the company is only a
source of liquidity to finance
growth, nothing else.
- Factoring is more suitable to SMEs.
- Group of companies which annual
sales is reported to exceed USD1Bi.
They are the sole agent and distributor
of many international brands (Kia,
Renault, Yamaha,…,etc).
- Company has a high level of corporate
governance.
- Company has 2 digit growth and most
of the time they seek finance to attend
the demand over its products which is
higher than company’s financial
(Including banks) capabilities.
- Company’s management style is
aggressive either toward growth
targets or financing.
- Company has banking facilities of
USD100M and utilizes more than
98% of which.
Alamriya casting
- Supplier finance used to be
sufficient unless the decision to use
all the operating cash inflow to
finance a capital expansion causing
a negative working capital and
- Company has annual sales of nearly
USD10M and reporting operating
losses due to production below the
breakeven point.

49 | P a g e
ongoing state of illiquidity which is
expected to last for years.
- Company has no facilities from the
commercial banks.
- Cost is the only factor to affect
company’s decision to factor its
receivables or not. If bank finance is
available company will only refer to
the comparative cost.
- Factors are only middleman
between the bank, which is the main
lender, and low risk rating
borrowers.
- Factoring is a very costly finance
option it is however an acceptable
cost to pay for the liquidity which is
essential for operations to continue.
- No relation between Factoring and
company’s strength, however, the
market doesn’t think the same way.
Market considers the Factoring as
an indication for a bankruptcy,
Factoring company need to build a
favorable image for its business
especially in Egypt.
- Factoring has no relation to the size
of the company. It is however more
related to the nature of business.
- Factoring, like any other financial
institution, can facilitate the
international trade.
- Company prefers the non-
notification factoring considering
the unfavorable image of Factoring
as a sign of weakness in the market.
- Due to cumulated losses, company is
having a negative equity.
- The company has a professional
management specialized in the
corporate restructure and re-
engineering.
- Company is a subsidiary of Citadel
group.
- Company exports nearly 40% of its
production.
- Company has no access to bank
finance and having low credit rating.

50 | P a g e
- Factoring is an alternative finance.
Alzhour
- Company sees Factoring as a main
source of bank finance. It sees
factoring as more flexible, risk
taker, and supporting. Nonetheless,
considering the business model of
the company it finds it a
disadvantage of factoring as it
doesn’t submit letters of guarantee.
- Company sees Factoring only as a
mean of finance and has no other
consideration for any other type of
business.
- Company complaints from the high
cost of factoring.
- Factoring is more suitable to SMEs.
- There is no relation between
company’s engagement in the
international trade and its factoring
decision. Factoring is equally
important to both domestic
companies and those involved in the
international trade.
- Company prefers the non
notification factoring as the
notification is sometimes refuse by
the customers considering the
market culture.
- Factoring is an alternative finance.
- Alzhoor is doing business for over 13
years. The company is an assembler,
supplier, importer, and producer of the
valves of the main water and sewage
pipes which is consumed mainly by
the government or main contractors
and real estate developers.
- Alzhoor has been using the factoring
as the main source of finance since
nearly 3 years.
- This segment sually has difficulty to
access the bank finance.
- Company’s sales increase from EGP
14 million to EGP39 millions in 3
years time attributing most of which to
the incremental working capital it got
from the external finance, mainly the
factoring.
- The company has 50 employees and
has EGP8M utilizing 100% of which.
- Company has no trade credit.
- Company’s average days out standing
of receivables 6-9months.

51 | P a g e
MAC carpets
- Factoring is an alternative finance
and only sought as to back the short
term bank credit or else to
compensate against shortage in the
available bank finance.
- The debt protection is an important
function of factoring and factoring
without a debt protection is not a
factoring and will lose if compared
to the traditional and less costly
bank finance.
- Factoring is unusual sort of finance
with the option to guarantee the
debts and also to window dress the
financial statements after getting rid
of the investments in the accounts
receivables.
- Factoring is taking over the finance
of the credit sales to strategic
clients.
- Supplier finance is company’s
favorite type of finance, but not
sufficient.
- Company’s strength or weakness
has nothing to do with its decision
to factor the receivables. There is no
linear relationship. It is simply one
method of finance such like all the
other available methods.
- Factoring is more suited to
companies involved in international
trade.
- Company prefers the notification
factoring but some clients refuse to
assign the debts to lenders.
- The key determinant of the
factoring decision is similar to any
other finance decision, no
difference; it is cost-benefit-
analysis.
- Company is one of world’s largest
producers of carpets. It is 30 years in
the business with a paid-in capital of
USD 40M and total equities of
USD60M.
- Company’s has no business growth
due to its large size and the low
growth of the industry itself and
achieving annual sales of nearly USD
150M.
- Company has 6000 employees and
enjoys a good market reputation and
easy access to bank finance.
- Company has short term credit limits
of EGP550M and utilizing 90% of
which.
- Company is granted a total factoring
limits of nearly USD 20M and utilizes
nearly 40% of which.

52 | P a g e
- No relationship between company
size and factoring decision it is all a
cost Vs return.

53 | P a g e
1
Nourmidas
2010
2011
2012
Cash growth
-91%
104%
36%
Invetory growth
54%
33%
9%
Receivable growth
-7%
26%
4%
LIQUIDITY ANALYSIS
Cash ratio (Cash/Current liabilties)
2.24%
3.31%
4.49%
ACID test (Current Assets-Ineventory/Current Liabilities)
77.25%
77.58%
61.91%
Current ratio (Current Assets/Current Liabilties)
215.90%
211.22%
207.08%
Account receivable days outstanding
160
158
221
2
Enjoy
2010
2011
2012
Cash growth
21%
-33%
-53%
Invetory growth
-17%
14%
-33%
Receivable growth
-18%
61%
-40%
LIQUIDITY ANALYSIS
Cash ratio (Cash/Current liabilties)
16.40%
6.82%
2.00%
ACID test (Current Assets-Ineventory/Current Liabilities)
68.94%
60.16%
22.04%
Current ratio (Current Assets/Current Liabilties)
146.70%
115.44%
44.98%
Account receivable days outstanding
62
69
97
3
Egyplast
2010
2011
2012
Cash growth
77%
-83%
6029%
Invetory growth
12%
46%
28%
Receivable growth
-6%
31%
17%
LIQUIDITY ANALYSIS
Cash ratio (Cash/Current liabilties)
2.01%
0.41%
17.03%
ACID test (Current Assets-Ineventory/Current Liabilities)
39.55%
60.53%
62.78%
Current ratio (Current Assets/Current Liabilties)
62.98%
101.72%
98.43%
Account receivable days outstanding
113
122
112
4
OGFI
2010
2011
2012
Cash growth
0%
-11%
289%
Invetory growth
24%
34%
-40%
Receivable growth
20%
5%
-57%
LIQUIDITY ANALYSIS
Cash ratio (Cash/Current liabilties)
11.96%
8.48%
46.50%
ACID test (Current Assets-Ineventory/Current Liabilities)
55.89%
40.44%
68.35%
Current ratio (Current Assets/Current Liabilties)
106.20%
93.92%
113.54%
Account receivable days out standing
(Accounts Receivables/SALES/365)
55
55
36
5
ASEC
2010
2011
2012
Cash growth
NA
-40%
-48%
Invetory growth
NA
-9%
34%
Receivable growth
NA
-5%
-30%
LIQUIDITY ANALYSIS
Cash ratio (Cash/Current liabilties)
5.76%
3.49%
1.74%

54 | P a g e
ACID test (Current Assets-Ineventory/Current Liabilities)
39.66%
37.66%
34.33%
Current ratio (Current Assets/Current Liabilties)
73.20%
68.43%
73.49%
Account receivable days outstanding
74
62
53
6
SUBSEA
2010
2011
2012
Cash growth
7%
-31%
-87%
Invetory growth
-25%
30%
3%
Receivable growth
9%
-73%
90%
LIQUIDITY ANALYSIS
Cash ratio (Cash/Current liabilties)
240.26%
115.38%
5.96%
ACID test (Current Assets-Ineventory/Current Liabilities)
590.34%
186.23%
64.56%
Current ratio (Current Assets/Current Liabilties)
628.83%
220.98%
79.14%
Account receivable days outstanding
163
94
161
7
TransAfrica
2010
2011
2012
Cash growth
-48%
-86%
921%
Invetory growth
-13%
-4%
-19%
Receivable growth
41%
-1%
9%
LIQUIDITY ANALYSIS
Cash ratio (Cash/Current liabilties)
1.29%
0.18%
7.70%
ACID test (Current Assets-Ineventory/Current Liabilities)
76.85%
73.09%
324.50%
Current ratio (Current Assets/Current Liabilties)
110.03%
104.77%
430.22%
Account receivable days outstanding
148
103
98
8
Albaddar
2010
2011
2012
Cash growth
-44%
-84%
-30%
Invetory growth
-48%
65%
-23%
Receivable growth
-8%
-27%
3%
LIQUIDITY ANALYSIS
Cash ratio (Cash/Current liabilties)
4.47%
0.53%
0.33%
ACID test (Current Assets-Ineventory/Current Liabilities)
96.92%
61.60%
54.54%
Current ratio (Current Assets/Current Liabilties)
133.95%
106.87%
84.88%
Account receivable days outstanding
151
140
115
9
PPT
2010
2011
2012
Cash growth
NA
1300%
-30%
Invetory growth
NA
41%
70%
Receivable growth
NA
106%
48%
LIQUIDITY ANALYSIS
Cash ratio (Cash/Current liabilties)
0.22%
1.25%
0.55%
ACID test (Current Assets-Ineventory/Current Liabilities)
85.91%
79.08%
78.98%
Current ratio (Current Assets/Current Liabilties)
154.78%
119.19%
121.94%
Account receivable days outstanding
73
116
135
10
SAPESCO
2010
2011
2012
Cash growth
72%
-31%
-21%
Invetory growth
5%
10%
14%

55 | P a g e
Receivable growth
6%
-13%
34%
LIQUIDITY ANALYSIS
Cash ratio (Cash/Current liabilties)
16.92%
14.60%
10.33%
ACID test (Current Assets-Ineventory/Current Liabilities)
74.50%
76.97%
84.97%
Current ratio (Current Assets/Current Liabilties)
92.42%
101.74%
110.09%
Account receivable days outstanding
150
157
200
11
Dytex
2010
2011
2012
Cash growth
47%
77%
23%
Invetory growth
70%
-2%
6%
Receivable growth
33%
22%
71%
LIQUIDITY ANALYSIS
Cash ratio (Cash/Current liabilties)
3.32%
5.02%
5.03%
ACID test (Current Assets-Ineventory/Current Liabilities)
38.81%
39.16%
43.57%
Current ratio (Current Assets/Current Liabilties)
130.89%
116.06%
110.11%
Account receivable days outstanding
41
41
56
12
ALKAN
2010
2011
2012
Cash growth
3%
-5%
1%
Invetory growth
35%
-18%
-12%
Receivable growth
64%
8%
11%
LIQUIDITY ANALYSIS
Cash ratio (Cash/Current liabilties)
3.20%
3.44%
3.22%
ACID test (Current Assets-Ineventory/Current Liabilities)
77.44%
83.19%
85.51%
Current ratio (Current Assets/Current Liabilties)
128.46%
130.17%
123.85%
Account receivable days outstanding
62
98
75
13
Amriya
2010
2011
2012
Cash growth
-91%
-53%
180%
Invetory growth
-33%
-3%
-24%
Receivable growth
18%
-3%
9%
LIQUIDITY ANALYSIS
Cash ratio (Cash/Current liabilties)
0.90%
0.43%
1.08%
ACID test (Current Assets-Ineventory/Current Liabilities)
36.75%
38.50%
37.16%
Current ratio (Current Assets/Current Liabilties)
76.17%
77.66%
63.80%
Account receivable days outstanding
99
91
138
14
Alzhoor
2010
2011
2012
Cash growth
-29%
30%
352%
Invetory growth
105%
-7%
42%
Receivable growth
-8%
115%
91%
LIQUIDITY ANALYSIS
Cash ratio (Cash/Current liabilties)
5.78%
3.08%
7.28%
ACID test (Current Assets-Ineventory/Current Liabilities)
130.48%
111.83%
101.15%
Current ratio (Current Assets/Current Liabilties)
242.01%
154.29%
132.74%
Account receivable days outstanding
58
107
121

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15
MAC group
2010
2011
2012
Cash growth
414%
-35%
-27%
Invetory growth
2%
-10%
6%
Receivable growth
-14%
32%
21%
LIQUIDITY ANALYSIS
Cash ratio (Cash/Current liabilties)
2.88%
2.26%
1.45%
ACID test (Current Assets-Ineventory/Current Liabilities)
19.78%
29.62%
30.44%
Current ratio (Current Assets/Current Liabilties)
110.68%
128.23%
122.04%
Account receivable days outstanding
52
67
75