Factoring would not lessen need for good debt collection – HSBC, Malta chief

HSBC will explore the possibility next year of offering a factoring service to suppliers in the wake of the Price Club supermarket crash, but the provision of such a facility would in no way lessen the need for traders to keep on top of their creditors, according to Tom Robson, chief executive officer of HSBC, Malta.

Last week, The Malta Financial and Business Times reported that suppliers and traders may well decide to push banks to make a factoring service available, following the disastrous crash of the supermarket chain which left hundreds of companies collectively owed some Lm8.5million.

The practice of factoring involves a company which is engaged in the business of financing accounts receivable – often a bank – assuming the credit risk of account debtors and receiving cash as the debtors settle their accounts.

Mr Robson, who was also a director of the HSBC’s factoring company in the UK for five years prior to coming here, admitted that the bank had considered providing a full factoring service or an invoice discounting service immediately it began operating in Malta, but decided that it was "not appropriate" at that time.

"However, this does not rule out the possibility of re-examining the position during 2002," he said.

Mr Robson stressed that a factoring facility would only be provided if the company had a good spread of debtors, the debtors all had a sound credit rating, the collection of outstandings could be achieved without undue difficulty and the applicant’s bookkeeping standards with regard to its debtor book were satisfactory to the Bank.

He also said that the maximum amount to be advanced is usually 80% of outstanding debtors.

In last week’s issue of this newspaper, Tony Zammit Cutajar, whose company, P. Cutajar and Co. Ltd, suffered its biggest loss ever in the Price Club crash during 135 years of operating, said he would like to see the banks play a role in helping traders achieve more secure trading conditions.

But Mr Robson stressed that even if the banks lend more support to suppliers, it will not solve all their problems.

"A factoring service does not remove the need for suppliers to have a robust collection system for outstandings and to ensure that their customers adhere to the agreed terms of trade," he said.

Mr Zammit Cutajar had also urged the banks to help reform some of the current business practices and ensure enough groundwork is carried out in connection with the viability of certain projects – something Mr Robson emphasised HSBC is doing, although he admitted there is more room for improvement.

"HSBC is putting a lot more emphasis on the need to produce business plans, feasibility studies and cashflow projections for projects, but currently I consider the quality of these items to be somewhat mixed," he said. "In addition, when the bank considers projects, it now requires the shareholders/directors to contribute cash up to an agreed percentage directly to the project and not merely provide security."

Mr Robson also said that ever since HSBC arrived in Malta it has adopted an approach to lending which was based on viability and not security.

"As I have said on several previous occasions, no amount of security makes a bad project good," he stressed.