Most of the factoring transactions we refer to are conducted between factoring companies and small to mid-size business operations. I came across a press release this morning that refers to accounts receivable factoring at an entirely different level.
The release was to announce that a company called China Security and Surveillance Technology (CSST) had reached an agreement with the Industrial and Commercial Bank of China (ICBC) for accounts receivable factoring. CSST won the bid to supply security and surveillance equipment for what is called the Kunming Safe City Project. The deal is worth 204.9 million RMB which is the equivalent of about 30 million U.S. dollars.
Essentially, the bank will acquire all of the receivables from CSST and pay CSST the entire amount due (less fee of course) upon completion of the project. The Kunming Municipal Government will then pay ICBC over a period of 5 years.
It is interesting to see factoring handled at this level. Still, the concept is identical to even the small business transactions we see. The company (CSST) sells receivables to a factor (ICBC) and gets their cash much faster than they would if they had to wait for the government of the city of Kunming to pay them. And, obviously, the bank has determined that the fee plus the value of the receivables assett allows it to make a profit. Seems to me that everyone wins.
I am going to be paying more attention to factoring assets and receivables at the international level.
