American Factoring Business Analysis

With the globalization of the world economy, increased volume of theinternational trade and services, the rapid growth of the domestic economy and thetrend of the seller’s market substituted by the buyer’s market, O/A(Open Account) hasbecome the main means of the settlement in the international trade and services.Factoring, having successfully solved two major problems and difficulties related tothe O/A settlement, i.e. the buyer’s credit risk and financing, has developed quickly inrecent years.The concept of factoring was introduced into China in1980s, and formallylaunched after the Factoring Agreement was signed between Bank of China BeijingBranch and the United States of American Gripen Factoring Company in1992. Withthe development in the past twenty years, factoring volume in China reached$450billion in2012, and retained the first place in the world. Despite the high-speedgrowth, however, the problems such as the imperfect of the credit system, the lack oflaws and regulations and the insufficient supervision have become the obstacles to thehealthy development of factoring business in China.The United States is the origin of factoring business and has established matureoperation mode and perfect legal system after hundreds years of development, Thefundamental structure, the domestic commercial credit system, the legal environment,the regulations and the credit risk control methods about factoring in U.S.A areworthy for other countries. Although in recent years, the annul factoring volumehovered around$120billion, and even slightly declined under the impact of the worldfinancial crisis and slowdown of the global economic growth, the complete creditdatabase, the system of credit risk assessment and the ability of adjustment in riskpolicies secured the healthy and stable development of the factoring business in U.S.A.All these experiences provide useful guidance and reference to China for its ownfactoring business.In this paper, the concept of factoring is defined and the origin of the UnitedStates factoring business, the evolution as well as the characteristic of the factoringare presented briefly. Various categories of factoring business with different risks are analyzed and discussed. The writer also worked over the risk control methods byanalyzing in depth the general rules of the international factoring, the operationprocess and mechanism of the factoring business in the United States. Finally, wesummarized the safeguarding mechanism of the factoring business in the UnitedStates by study the legal relationship, the legal system and the legal requirements.Based on the current situation and the characteristic of the factoring business in Chinaas well as the experience about the factoring operation mechanism and legal system inthe United States, we give some suggestions for the healthy development of thefactoring business in China.