Factoring: An Accessible Financing Option for SMEs in Thailand

CapBay Thailand is a member of the Thai Factoring Association, and we have participated in a press conference together with the association to promote both domestic and international factoring on the 1st August 2024. Source.

“Factoring”: A short-term working Capital solution helping SMEs gain access to funds. Currently, over 3 million Thai entrepreneurs face limited funding access, with less than 50% of their need.

In an era where the economy is facing tough times, market are filled with products, yet they remain quiet. Vendors and small to large entrepreneurs alike are voicing their concerns, as “Chinese products” continue to flood nearly every Thai market. With their massive production capacity and lower cost, Chinese products are often priced more competitively than their Thai counterparts. Without trade barriers or protective measures, a price war is inevitable. The question now is, how can Thai products compete?

The COVID-19 crisis has already made things tough, but the current economic challenges are even more daunting. Many small entrepreneurs had to close their factories. While the government has introduced measures to support debtors and SMEs, such as the “100 billion baht Soft Loan,” the policy, though well-intentioned, is challenging for newly established medium, small, and micro-entrepreneurs to access. The strict conditions imposed by banks make it difficult for SMEs that aren’t deemed “creditworthy” to secure these funds, leaving many.

“Believe it or not, according to the Bank of Thailand, there are currently over 3 million SMEs in the country, yet less than 50% have access to capital. This statistic highlights many issues. Each year, the total loan amount is  more than 300 billion baht. If the government prioritizes promoting factoring loans to assist entrepreneurs who still have limited access to funding, it would be a significant opportunity for SMEs, addressing many of the challenges faced by businesses in the country. Factoring is specifically tailored to support business growth,”

Mr. Akarwit Suksai, President Of The Thai Factoring Business Association (TFA)

The “Thai Factoring Business Association” was established on October 26, 2000, with the aim of promoting and supporting the factoring industry. The Association focuses on developing business standards, educating the public about the factoring business, and protecting the interests of its members. It also collaborates with both government and private agencies. Currently, the Association has 13 members, including 4 commercial banks and 9 non-bank financial institutions.

Understanding the “Factoring Business”

“Factoring business” involves providing short-term working capital loans with terms not exceeding 180 days.

Advantages of Factoring

Factoring “interest” typically starts at MRR+, reflecting the difference in the interest rate charged. It’s important to note that factory loans are strictly business-oriented.

There’s also “International Factoring,” a financial service that allows businesses to manage cash flow by selling accounts receivable (invoices) to third parties at a discount. This transaction occurs internationally, such as when the seller is in Thailand and the buyer is abroad. This approach provides instant cash flow, reduces the risk of non-payment from international customers, and enhances competitiveness.

The key advantage of “International Factoring” for Thai entrepreneurs is that it is easy to apply for and withdraw funds without requiring collateral. Entrepreneurs can access up to 90% of the funds within one day, with interest charged only for the actual usage period.

 “The key focus moving forward is to enhance the Association’s public relations efforts while actively reaching out to small entrepreneurs who currently lack access to capital. The Association is dedicated to genuinely supporting these entrepreneurs and hopes that these efforts will help increase liquidity, enabling Thai business to grow and thrive.”

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