Inside the List: Debt collectors factor in new laws to help business

Incumbent factoring companies are pushing for changes in government laws that would better recognize the fast-growing sector. Meanwhile, more and more foreign players are taking heed of the potential for a better regulated Polish market. "We are trying to arrange a lobbying group," said Tomasz Biernat, the head of the marketing department at Pekao Faktoring, the largest such firm in the country. "Now it's not a defined part of (any) law." Factoring companies collect debts owed to a company, while they advance that company a portion of the money it is due to receive to improve its liquidity. They undertake all or part of the risk for customers who delay or refuse payment. At the head of a list of lobbying concerns, most factoring practitioners demand that their industry be given leeway similar to banks in writing off bad loans. Such a move would allow them to service more customers. At present, factoring firms are not allowed to count any uncollected debt as a cost, and it is fully taxable. Specifically, professionals point to recent proposals by Finance Minister Grzegorz Kołodko, which offer lenders more tools to confront bad debt, as an example of what they would like to see occur in the factoring sector. "That will enable us to offer more financing on a higher level because right now it is (too) risky," said Krzysztof Telega, the president of Polfactor, a firm that is partly owned by BRE Bank. "If we will be able to include some part of our losses, we will be able to take more risk." Executives said they have forged a de facto lobbying group comprised of Poland's factoring firms, such as Polfactor, Pekao Faktoring and Handlowy-Heller. Factoring professionals are realistic about a time frame for any new legislation. "It would take one or two years to achieve the result," Telega said. He chalked up the lengthy time period to the general slowness of Poland's legislative process and a lack of awareness of factoring as a business.

Attractive market Even with the lack of legislation, Poland still seems to be an attractive market for foreign firms. Bibby, the largest factoring company in the U.K., recently set up shop in Warsaw. "We actually opened our doors at the start of June," said Julie Ashmore, the director of Bibby Factors Polska. "We saw that the potential opportunity in Poland is enormous." The U.K is Europe's largest factoring market, so Bibby's decision to set up shop has drawn attention. Some Polish factoring companies, most partly owned by banks, are concerned that Bibby, with its success in the British markets, would chip away at their growing earnings, said Polfactor's Telega. Bibby said there is enough business to go around. "We certainly view the existing players (in the Polish market) as not comparable to Bibby," Ashmore said, but as complementary. And the Polish market for factoring is certainly growing. In 2001, companies registered €3.33 billion in turnover in Poland, up substantially from €2.08 billion in 2000, according to research by Factors Chain International, an organization of banks and factoring firms based in Holland. Factoring executives said the figures are evidence of a dynamic industry, especially when compared to 1995's €11 million in turnover. The Polish market is still significantly smaller than the U.K., where in 2001 there was €139.8 billion in volume. But it matches up well with other European Union hopefuls like Hungary and the Czech Republic, which managed €546 million and €1.23 billion respectively. Analysts said that there are a number of reasons for the surge in factoring business. "The market is a growing one, at least that's what we see," said Michał Bełdzikowski, credit structure senior manager at ABN Amro in Warsaw. "Companies are looking for alternative ways to liquidate receivables (because of the) economy." Poland's economic slowdown, with gross domestic product registering only 1% growth in 2001, has had wide-ranging effects. "The main problems of the companies is the lack of liquidity," Telega said. "It's very hard to do business in those type of circumstances … if the Polish economy is (not) at 100%. "After joining of the EU, I think the GDP will grow maybe 4%. And I think it will help the factoring business," he said. An improving economy, plus government measures to aid business will be a boon to small- and medium-sized companies, which are typical factoring firm customers. Bibby's strategy, for example, is to target smaller companies. Ashmore said Bibby's looks for contracts of zł. 300,000-zł. 500,000. The company is close to signing its first contract in Poland, she said. "I would say that we are taking the medium- to long-term view - a five year view," she said. The company is not "naive enough" to think that it could enter Poland and build substantial revenues by year's end, she added.