Hong Kong has long served as the financial center and one of the shining beacons of stability in Asia. There are definite pros and cons to Hong Kong’s market for AR financing. Factoring companies and factoring customers will probably see things in this market in a very different light…. Factors will find it more on the hellish side, but very stable, while factoring customers will most likely find Hong Kong more beneficial for this type of commercial lending.
Hong Kong’s market provides stability that commercial lenders appreciate because it adds to the safety of their underlying financial transactions. Hong Kong’s legal system also is well developed for handling commercial matters from the commercial lending litigation to the actual securitization of invoice transactions. Many countries still struggle with these basic needs to conduct commercial financing or AR financing smoothly. Hong Kong’s financial system is also rock solid with deposits that actually back the amount on deposit unlike other countries’ highly levered bank systems. Hong Kong’s monetary system and dollar is also pegged against the U.S. dollar which traditionally has been the currency of choice due to overall stability.
Therefore, AR financing from the stability aspect is quite stable based on the environment described, but there are some obstacles. Because of this stable environment, Hong Kong has created a very competitive and sophisticated financial market. There is a tremendous amount of liquidity and many banks and financial institutions in this country. The hell for factoring companies starts with the pricing. Hong Kong has some of the lowest interest rate loans and many banks are providing factoring or something similar at these very low rates. The fact that banks provide many other financing services does not help as well.
Additional hurdles in Hong Kong for factoring companies, large and small, will also include acquiring the right market knowledge and product offerings. There is a learning curve and experience needed to understand how deals are structured and to train personnel that is competent to sell the factoring product in this market.
Factoring customers in Hong Kong are actually the winners with many banks to select from and some of the lowest rates globally. There is still a hurdle for potential borrowers or factoring customers in Hong Kong as the banks are looking for more financial reporting and better records so the businesses applying to these banks best have their books in near perfect order.
PMF Bancorp has developed some AR financing as well as other programs over the years that have overcome many of the hurdles and allowed us to close transactions in Hong Kong. PMF Bancorp has designed a program called “Supply Chain Plus Financing™” which we believe meets many of the local businesses requirements in Hong Kong. PMF’s Supply Chain Plus Financing™ Program for our Hong Kong customers includes financing of materials at the production level along with invoice insurance, advances for cash flow purposes, and quality control program integration with their supply chain(s). With these services, PMF is in a much better position to compete in terms of value because few factoring companies can compete toe-to-toe with banks based on solely price. Food for thought. Look for next month’s article where I write about the other hell next month…factoring in China.
Stephen Perl, CEO
Author: Secrets of Doing Business with China: Dancing with the Dragon (2012) (Amazon)
Stephen M. Perl, MS, MBA is the CEO of 1st PMF Bancorp, a leading US commercial bank lender, and the founder and CEO of ChinaMart® Los Angeles, a platform that assists Chinese companies in their investment in the USA.
Mr. Perl has successfully grown 1st PMF Bancorp’s lending portfolio to one of the largest private, short-term business lenders in the US with specialty in factoring and trade finance for companies with annual sales from $1 to $50 million. He designed PMF Bancorp’s, “Supply Chain Plus Financing Program™ ” to provide the most comprehensive supply chain financing platform in the US for small to medium sized companies doing business between the US and China. Mr. Perl established the first private US lender in China in 2004 and has recently published a book called, “Dancing with the Dragon: The Secrets of Doing Business with China” (2012) as an executive’s guide to doing business with China.