Factoring is increasingly present in the Montenegrin business environment, not as a special or reserved option, but as a practical solution that many companies recognize as part of their daily liquidity management. The trend is that more and more companies are using factoring to quickly dispose of funds from already issued invoices, without borrowing and without long-term commitments, and this financing model is now recognized as an effective way to improve turnover and ensure greater predictability of business.
We talk to Ilija Ivanović, director of Financial Solutions, about how factoring works in practice, who uses it, and in what situations it can make a difference.
Until recently, factoring was seen as something reserved for specific situations or as a lesser-known alternative, but it is increasingly present in business conversations. What, in your opinion, has led to factoring being discussed today as one of the options that has a completely common place in business financing?
Factoring is increasingly being discussed in business circles, with a positive change in the way factoring is understood. Compared to the situation 5 years ago, when we started, and when factoring was often and incorrectly understood as the collection of uncollectible receivables, it is now more often correctly understood as the collection of overdue receivables. We are happy to be part of the factoring development process in Montenegro and to have supported more than 200 clients so far, with financing of 80 million euros provided. However, the fact that factoring in the Western Balkan countries currently contributes around 2% to GDP shows that it is present, but at the same time indicates a huge room for growth, if compared to European markets where this share ranges between 10% and 13%.
In what situations do companies in Montenegro most often use factoring? Is there a recognizable pattern or user profile, or are the needs much broader than is usually assumed?
In short, the needs are broader. There are of course sectors where factoring has naturally "laid down" as a solution, such as tourism, trade and manufacturing, especially for companies that work with larger customers and are exposed to significantly delayed payment deadlines. But what we see on the ground is that the motives for using factoring come from very different business logics.
Some people use factoring because they need quick liquidity for new purchases. Some people use it because they want to offer more favorable terms to their customers without jeopardizing their own cash flow. Some people use it occasionally, seasonally, when the needs are greater. There are also those who initially used factoring as a supplement to traditional lending, and now fully see it and use it as a basic tool for managing their business.
In essence, as the factoring service develops, and as markets, not only ours, recognize this financing model, the "typical" factoring user is also disappearing, if it ever existed. There are only companies that want to work efficiently and have control over their money. Factoring is ceasing to be a specialized tool, and instead is increasingly becoming a part of everyday financial practice for controlling cash flow. And here we come to the key point: factoring is not a complicated, nor a reserved service. It is neither a loan, nor a measure of last resort, but a very standard and useful tool that helps companies to turn what they have already earned into available funds, quickly and without borrowing.
You recently participated in a regional conference on factoring and supply chain financing, organized by the EBRD, which brought together stakeholders from several Western Balkan countries. What are the experiences from the region when it comes to the use of factoring and can this practice be relevant for Montenegrin companies, given the differences in regulations and market dynamics?
The Skopje conference has just confirmed that the interest in factoring in the region is not just declarative, but very concrete and driven by real needs. In all Western Balkan countries, extended payment terms are present, often 60 to 90 days, and even longer, which makes it difficult for companies to maintain stable cash flow. In the EU, the average payment term has increased from 41 to 52 days in just one year, and almost half of B2B transactions in Western Europe are affected by delays. Partly because of this, and in these developed markets, companies are increasingly using factoring to cushion the pressure on cash flows, and as a result, the factoring market in Europe is growing at a double-digit pace, both in volume and in the number of users.
In the region, market growth is going hand in hand with digitalization and better education, but also with systemic solutions, with the simultaneous support of domestic and international development banks. For Montenegrin companies, such data could be an additional incentive to think more about factoring as a financing model. The need for predictability, working capital management and risk reduction is the same in Kotor as in Cologne. Factoring is a way for a company not to depend on when its customer will pay, but to choose how to finance its obligations and investments.
You have repeatedly mentioned speed, flexibility and predictability as key benefits of factoring. What makes it particularly relevant right now – has anything changed on the market, customer or broader financial front that contributes to factoring increasingly being seen as a logical choice?
I would say it is a combination of all of these. On the one hand, companies are increasingly seeing that maintaining control over cash flow is not a luxury, but a prerequisite for survival, especially in conditions where payment terms are lengthening and business costs are rising. On the other hand, habits have also changed. Business people today want solutions that are fast, digital, without unnecessary procedures and without long-term commitments. Factoring fits these criteria.
With regulatory and infrastructural changes, such as joining SEPA or the expected introduction of electronic invoicing, it is also noticeable that more and more professionals, accountants, financial advisors and managers recognize factoring as a tool that helps them optimize the business of clients or the company they manage. This is also noticeable in the fact that factoring used to have to be "explained", but today we often receive companies that themselves request an assessment of their invoices and want to compare financing models. In other words, I believe that the market has matured and that factoring is understood as part of a wider range of financing options.
What does the process of using factoring actually look like in practice – from first contact to payment? Can companies really expect the simplicity and speed we are talking about when they actually start cooperation?
In practice, the first step is usually informative - the client sends us the invoice they want to collect and some basic information about their customer. We quickly, often within the same day, analyze whether the invoice meets the basic criteria for financing. If so, an offer follows with all the conditions, without hidden items and without any obligations for the client to accept it. The cooperation is formalized through a simple contract, and the invoice is paid, depending on the model, most often within 24 to 48 hours. A lot of this can also be done digitally, and companies that have gone through classic credit procedures often tell us that what surprises them most is how fast and specific everything is.
It is interesting that among new clients there are more and more companies that are entering this financing model for the first time, but the process does not seem foreign or demanding to them. This is confirmation to us that simplicity is not a matter of compromising quality, but rather the result of a good understanding of the needs of the users. We try not to create additional pressure, but to be a support, someone to whom the client can turn for advice, not only for financing. This trust is the foundation of long-term cooperation, and one of the results is that the majority of clients come to us precisely through recommendations.
What would be your main message to companies that are considering factoring but haven't yet taken the first step? Is there anything you wish more companies knew before making a decision?
I would like companies to know that factoring is not complicated, reserved or inaccessible and, most importantly, does not imply an obligation to make a decision immediately. The first step is just information: whether the invoice can be financed, under what conditions and what it specifically means for the company.
In practice, this information alone often changes the way a company looks at its cash flows and plans its business. Factoring does not have to be used always and for everything, but it is important to know that it exists. That knowledge makes a difference. And that is why we always encourage companies to ask, to send an example, to compare. Our job is not to convince, but to explain. And when things are explained clearly, companies and entrepreneurs make the best decision themselves.
For more information about the factoring process and Financial Solutions services, visit www.financialsolutions.me or call 067 174 345.
( Financial Solutions doo )
