BoT starting digital factoring next year

The Bank of Thailand plans to implement digital factoring next year to facilitate small and medium-sized enterprise (SME) access to loans.

Factoring businesses provide an intermediate solution for liquidity problems caused by delayed payments.

The idea behind the process is suppliers sell the invoices of a customer or debtor to a factoring business at a discount to receive their money now.

The central bank has been developing Central Web Service to support the digital factoring system, which is expected to be implemented in the beginning of next year.

The move will facilitate SME business operators, especially small firms that have difficulty getting approved for loans from banks, allowing them better access to funding sources, said Pirajit Padmasuta, senior director of the financial institution strategy department.

SMEs can use invoices as debt collateral for loan assessment, but this

‘‘ For the first year of operations, the Bank of Thailand forecasts 10,000 micro SMEs will participate in digital factoring. PIRAJIT PADMASUTA Senior director, BoT

requires 6-9 months to receive loans under the traditional factoring service, said Ms Pirajit.

The long approval process creates a liquidity bottleneck for SMEs, she said.

The digital factoring system will benefit the whole supply chain, covering sellers and buyers.

The new system will also shorten the process and lower operating expenses, particularly document costs, while preventing problems related to fraud and double financing, said Ms Pirajit.

There are around 3.1 million SMEs in Thailand registered as juristic persons, with 99% categorised as micro SMEs with annual sales of no more than 10 million baht.

In the initial stage, the central bank expects around 200,000-300,000 micro SMEs to participate in the digital factoring system.

“For the first year of operations, the Bank of Thailand forecasts 10,000 micro SMEs will participate in digital factoring with a total credit line of around 300 billion baht,” said Ms Pirajit.

Under the Civil and Commercial Law, the ceiling interest rate for loans is set at 15% per year, while the market rate is around 7-8% per year.

Within the digital factoring system, interest rate charges could decline in line with lower operating costs, but this depends on market mechanisms and competition, she said.