Factoring and forfaiting: assessment of the current state and prospects for financing foreign economic transactions

Abstract

The article examines the tendencies of the Russian factoring market from 2010 to 2017 and rewies both industry and geography aspects of the factoring portfolio.
Today factoring industry structure is mainly represented by processing industry and trade. Companies that provide basic services like transportation, communication and construction almost do not use factoring scheme.
The main reasons of insufficient development of factoring in Russia are: 1) relatively high cost of the service, 2) complicated and conflicted legal framework, 3) lack of proper software, 4) underqualification of both factoring companies staff and their clients.
Forfaiting market is much less developed in Russia due to several reasons: 1) a “conflict” with national currency legislation, 2) absence of the notion “forfaiting transaction” and transactions procedure, 3) absence of the secondary market for bills 4) problems with bookkeeping of forfaiting transactions.
In the context of poor forfaiting market, Russian companies tend to use letters of credit with the installments of payment. Yet, as stated in the article, these financial instruments are different and should complement rather than substitute each other.
The expansion of such financial instruments as factoring and forfaiting in Russia depends on eliminating the existing regulatory gaps and applying a number of organizational proposals, stated in the article.