Factoring in the 2011

The position of factoring market on the basis of statistical data of  2011:

	2010	2011
Gross factoring turnover (bln HUF)	860	888
Clientele (enterprise)	3027	3048
Maturity (day)	60	68
Rate of recourse factoring turnover (%)	48	64

The chart below presents the segmental gross factoring turnover:

SEGMENT	2010	2011
Agriculture	2	4
Industry	33	37
Building Industry	7	7
Trade	35	30
Services	12	13
Other	11	9
Total	100,0	100,0

Dividing factoring turnover in accordance with the net income of clientele indicates the size of enterprises requiring factoring services. (as per %)

YEARS	Micro Enterprises	Small Enterprises	Medium Enterprises	Large Enterprises
2010	12	53	34	1
2011	11	54	32	3

Factoring in the 2010

The position of factoring market on the basis of statistical data of  2010:

	2009	2010
Gross factoring turnover (bln HUF)	745,3	883,5
Clientele (enterprise)	3282	3131
Maturity (day)	66	60
Rate of recourse factoring turnover (%)	73	55

The chart below presents the segmental gross factoring turnover as of the last 3 years:

SEGMENT	2008	2009	2010
Agriculture	4	3	2
Industry	25	32	34
Building Industry	10	8	7
Trade	42	35	34
Services	12	9	12
Other	7	13	11
Total	100,0	100,0	100,0

Dividing factoring turnover in accordance with the net income of clientele indicates the size of enterprises requiring factoring services. (as per %)

YEARS	Micro Enterprises	Small Enterprises	Medium Enterprises	Large Enterprises
2008	28	51	21	-
2009	17	55	28	-
2010	12	53	34	1

Annual General Meeting to Approve Final Accounts and Renew Mandates in April 2010

On the last day of April the Hungarian Faktoring Associaton held its Annual General Meeting approving its final annual accounts and renewing mandate of its members.

Ferenc Csáki, CEO of Magyar Factor Zrt. was re-elected as President and with the exception of one member the former Board continues to direct the Association.

Gabriella Rédei, CEO of Next-Faktor Zrt. was re-elected as Vice President of the Board, the former-new members are Anna Bali, Executive of Primátus Zrt. and Tamás Molnár Executive of MKB Bank. A new member of the Board is Zsolt Major-Maróthy, CEO of CE Faktor Zrt.

For the first time in their modern history, the services of factoring accounts receivables faced a 10% market reduction. In spite of this the HUF 750bn gross factoring turnover has grown threefold in the last six years and according to the estimates of the Association this amount is equivalent to the 10% of short-term bank-loans to the SME-sector.

This clearly signals that factoring is far from being a group of marginal financial service, on the contrary, it is a substantial constituent of short-term financing services.

It remains to be one of the main objectives of the Association to create a financing background to our natural clients, the SMEs, where we can foster their growth and help them strengthen.

In accordance with this, the Association takes an active part in preparing for the modification of regulations concerning small and middle-sized companies, e.g. searching for ways to reduce ’chain debts’.

For years it has also been our principal objective to establish a program subsidizing interest based on EU-resourses for those micro and small companies which can survive with the help of lower factoring fees. These resources could help enterprises which – in spite of the financial crisis – have potential markets and would be able to grow but cannot obtain resources on account of the narrow-scale and expensive financing services of banks. Hopefully, such a program for the development of companies can be launched and operated in the near future.

Factoring in the 2009

The position of factoring market on the basis of statistical data of  2009:

	2008	2009
Gross factoring turnover (bln HUF)	831	739
Clientele (enterprise)	4474	2980
Maturity (day)	69	69
Rate of recourse factoring turnover (%)	73	73

The chart below presents the segmental gross factoring turnover as of the last 3 years:

SEGMENT	2007	2008	2009
Agriculture	5	4	3
Industry	26	25	32
Building Industry	13	10	8
Trade	39	42	35
Services	10	12	9
Other	7	7	13
Total	100,0	100,0	100,0

Dividing factoring turnover in accordance with the net income of clientele indicates the size of enterprises requiring factoring services. (as per %)

YEARS	Micro Enterprises	Small Enterprises	Medium Enterprises
2008	28	51	21
2009	17	55	28

On the General Meeting of 23 09 2009 the Association awarded Károly Martinkó with the For Factoring Medallion. The award was handed over by Ferenc Csáki, president of the Association. In this manner the members recognized Károly Martinkó's outstanding achievement in the foundation of the Associaton, in defining its activities and in the development of factoring services.

FACTORING IN RELATION TO VAT

At the end of 2007 the Association requested the Ministry of Finance to opinionate on Value-Added Tax Act of 2008 concerning factoring. The Association holds that as far as VAT is concerned the principal guideline is the actual economic content of factoring. The opinion of the Association concurs with the Unidroit Agreement, which is considered valid worldwide. The Agreement was ratified by Hungary too. The Agreement defines factoring as a contractual form with sales clause including a number of services based on assignment. Its elements are:

• Advance payment, finance
• Ledgering receivables
• Collection of receivables for benefit of clients
• Protection against default in payment by the debtors.

Since factoring is a combination of services (minimum 2, or 3,4), a dominant activity cannot be defined. According to the Association each service can be handled as regard to VAT in the following terms:

• Advance payment, finance – VAT free. The following items are to be listed here:
  Interest charge, commitment fee, withdrawal fee, interest on arrears, etc.
• Ledgering receivables – VAT taxable. The following items are to be listed here:
  Factoring fee, due diligence fee, contracting fee, contract amendment fee, contract termination fee, e-factoring fee, fee of reporting on ledgered receivable, etc.
• Collection:- VAT taxable. The following items are to be listed here: factoring fee, notices, fees of non-litigious and litigious proceedings, collection commission, debtor due diligence fee, up-to-date information on debtors, forwarding charges of cash flow or flat rates covering them.
• Protection against debtor default in payment– VAT taxable. The following items are to be listed here: risk charge, credit insurance charge, due diligence fee, limit modification fee etc.

After negotiating with the Ministry of Finance the Hungarian Inland Revenue Office has recently reviewed the Association’s request and confirmed in its statement the professional opinion of the Association. Quotation from the letter:

„Out of the above listed elements of services – on the basis of its content - the service referred to in point 1)can belong to the financial services listed in VAT Act points b)-f) of Subsection (1)of Section 86. and the services listed in points 2)-4)….. are taxable at standard rate.

On the basis of the aforesaid…factoring as defined by the Unidroit Agreement , and taking into consideration that it can never be solely regarded as finance (since it has to contain at least two of the above listed elements of services)is a complex transaction in which the fees paid by the client to the factor are billed burdened with 20%VAT rate.

At the same time factoring typically consists of financing element too, which element,  - considered individually – would be tax free service on the basis of the VAT Act point d). Subsection(1) of Section 86.

According to our standpoint, if, during factoring process, the financial element appears and it is clearly separable from other services provided by the factor, the equivalent of the financial service is to be invoiced tax-free, while the equivalent of other services is to be invoiced charged with 20 %VAT.”

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