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Risk Management in Factoring and Forfaiting

Risk Management in Factoring and Forfaiting

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Due to the regulations of Basel II and the present financial crisis the demand for Factoring and Forfaiting services is increasing. The rise in receivables means more business but at the same time more risk. The aim of this work is to present an overview of the risk management strategies involved in Forfaiting and Factoring services as the convention of Basel II forces the financial institutions to introduce higher standards of risk assessment and management. Besides documentary analysis of relevant material, expert interviews were conducted with nine professionals working in the factoring and forfaiting industry and analysed using ground theory. Results from the interviews and literature stress that the present economic downturn exposes Factoring and Forfaiting companies and banks to a higher credit risk, nevertheless they also benefit when compared to the conservative lending of banks. Finally this work concludes that a Factor must define its organisational goals focusing on clear identification and awareness of risk with the capability to adjust to changing business conditions.