Factoring’ de erken uyarı sistemleri ve bir örnek olay çözümü

Abstract

After 1980's by the result of economy opening to foreign markets and fastening the foreign funds entries, banks in our country policies carried out to, banks attempted to perform new financial services by the emerging needs. Related to this, the factoring transactions which has a long history in the world, started to be put into practice in our country. Factoring application in Turkey, started by the initiation of the banks in 1988. The most important reason for the banks being innovator in this job is the experience in the sector, the technical substructure they have and their information about the market and the clients. Factoring firms were built to support the foreign trade in the beginning, but later they come to the fore with domestic factoring transactions. In fact, in the last years, banks and factoring firms have become competing against each other in giving loans. Factoring transactions are, to buy the receivables coming from the time sales with a spot price by the factor which is turning the receivables into cash. As we can understand from this definition, clients finance themselves with their own receivables, instead of other sources. A factoring firm maintains funds to his client, take the risk of non-collecting the receivables and keep the book entries. Furthermore, factoring firms have a cost to the clients against their services. This cost consists of interest, commission and fees. As the factoring firms increasing in number rapidly, known as a new financing type by the real sector in the last years, an increase in the transaction capacity can be seen. Transaction volume in the factoring sector, even continued to grow in the economic crisis. Parallel to this, factoring firms started to reserve a place in the finance sector as alternative fund sources. In this competition environment factoring firms let the funds to be used without detailed credit analysis and risk control. While risk control departments in banks limit loan usage in the last few years, factoring firms continued to give loans underlying the risk control in this conpetitive environment. Therefore, by the negative economic conditions in our country especially as big firms going under difficult conditions, the bad loans of the factoring firms have increased. For this reason, bad loans that were not in an important ratio until now started to effect the sector badly. Bad loans reaching to big ratios in the finance sector in the last periods, causes many factoring firms become smaller. Until today, researches have been made to increase the risk of bad loans to minimum with the help of alarming systems by determining before hand in banks, but factoring firms have not made a detailed study on these. One of the reasons, non application of factoring transactions in Turkey as they are applied in the world and the very small share of them in the GDP. Factoring transactions are financing type that are known and applied in the last 2-3 years. Moreover, there is still an unknown part of it. The definition of the Factoring Transactions Factoring, its first usage depending on the Phoenicians, is a well known financing type. Shortly, factoring is a funding type, that is obtained by transferring the receviables coming from the short term sales to the factor. In other words, factoring is, transaction of assignment of the rights coming from any property and service of the firms making forward sales to the financial institution named as factor. Factoring transaction is made between 3 parties which are company (client), debtor and the factoring firm (factor). Company (client): the one demands factoring service and transferring the receivables coming from the forward sales to the factoring firm. Factoring firm (Factor): the party taking over the receivables of the customer company and paying a particular part in cash in return. Debtor: the person or company that the client sold goods and loaner to the client. Functions of the Factoring Transaction Factoring firms gives service in 3 basic topics. These are; 1- Financing (Crediting) Function Among the services that is offered to the customer in accordance with the factoring agreement that is made between the factor and the seller firm, there is a financing convenience in case of the customer request. This function is described as cash management service, too. Financement of the customer receivables is made by pre-payment and discount method. 2- Service (Management and Collection of the receivables) Function Service function of the factoring includes functions as keeping the book entries of the seller company, monitoring, collection of the receivables, market intelligence. 3- Collateral (Guaranteeing of the receivables) Function Factoring firms, takes over the risk of non-collection of the receivables of the seller companies. For this reason, factoring firm takes the risk of non-collection of the receivables of the seller firm under a collateral in a certain limit. Before confirming this limit, the factoring firm makes the necessary investigations about the customers of the seller firms. If it is found out that the debtor will not pay these in the result of this investigation, factoring firm has a right not to take these receivables as collateral. If the receivable that will be taken as collateral by the factoring firm, will be invalid in the condition that the goods are found defective. Types of Factoring 1- Domestic Factoring Factoring transaction that is made between the buyer, seller and factoring firm in the same country. It changes in the direction of the client's request. 2- International Factoring International factoring, is a factoring type where the seller and buyer firms are in different countries. International factoring transactions, are made between, client company (exporter company), exporter factoring company, importer factoring company, debtor company (importer). a)- Export Factoring Export factoring is a factoring type that is applied in which the buyer is in abroad. In export factoring, the client (exporter), sells and transfers the receivable that comes from the good delivery against a debtor in a particular country to the exporter factor in his country. Here, in this type of factoring buyer takes the importer and the seller takes the exporter title because the receivable is subject to factoring. In export factoring more risk is taken compared to domestic factoring. For this reason, it is benefited from a correspondence factor. b-)Import Factoring Import factoring is a factoring type in which factor gives to the exporting company in abroad a payment guarantee via correspondent. Thus, the importing company can make an import transaction without opening a letter of credit. Export factoring is completely opposite of the export factoring. 3- Other Factoring Types * Non-Recourse Factoring * Recourse Factoring * Disclosed Factoring * Undisclosed Factoring * Invoice Factoring * Discount Factoring * Maturity Factoring * Full Service Factoring * Bulk Factoring Bad loans and its reasons Bad loans are the infringement of the reimbursement agreement between the debtor and the loan giving institution and the possibility of loss. There is a possibility of the certain amount of the collected loans turning into bad loans or to loss. Mainly interior and exterior economic reasons and wrong policies arising from business administration are factors that turns the loan into bad loan. In addition to these economic factors, other factors that effects the financial failure are interior administrative problems. Actually, interior administrative factors are the most important determinant of financial failure. But, there are many factors that cause the loan to become a bad loan. These factors can be studied under 3 topics as follows; 1- Problems arising from the business itself 2- Systematic Risks 3- The mistakes that the creditor institution made during loaning period Alarming Signals If the alarming system is taken in general, it is to take into consideration to collect every oral and written data that will be useful. Financial table Analysis: Signals obtained by the result of financial tables of the company and financial analysis made via these tables. Management Quality: Conclusions figured out from the meetings made with the company managers. Analysis of Company Activities: Obtained from the company visits and intelligence information. Loan Monitoring: Carrying out the loan conditions and control of the collateral carries importance in determining the problem. Intelligence Sources: Information obtained from the 3rd parties and press publication sources. Risk Analysis in Factoring 1- Intelligence Study Information used for intelligence; * Company itself: the most important information source in company investigation. By mutual meeting, information on the individual characteristics, morality, information level of the company managers are obtained. * Information obtained from the market: Information connected with the seller company obtained from the companies in commercial relation, banks, other financial institutions and other debtor and other receivables. * Official land registries: Here, investigations in land offices are made on the real estates of the client company and the partners. * Commercial register general and Trade journal: By trying to provide these documents, information is gained about company title, activities, partner structure, capital, establishment e.g. * Central Bank registries: Investigation is made through protested bill-dishonored cheques and execution records of Central Bank. Besides, risk centralization is published per 2 months. This information shows the risk of the client in all factoring. * Other sources: Information can be obtained from Chambers of vocation, chambers of commerce, annual operating reports of the firms, notaries, newspapers, magazines, stock exchanges, traffic registries, e.g. 2- Financial Analysis Study The goal in financial analysis, is the investigation of the past performance and to get information about the current financial structure of the factor, seller firm. * Financial Analysis study starts with obtaining necessary documents and information from the firm that will be investigated. * The period after obtaining information continues with the preparations before the visit of company and activity place. * Financial data are subjected to pre-examination and pre-intelligence is made about the company. * After that, detailed information is gained via meeting with the company authorities about the company activities. * With these information, activity place is visited and the production foundations are seen. * By these data, a convincing financial analysis report is prepared. 3- Alarming Systems * Unpayment of the enterprise on the maturity date and demanding an additional period and using this period till the end even exceeding this period, * Dishonored cheques and protested bills of the clients or legal prosecution or execution on the client, * Departure of the company owners and partners effective on the management, * Bad condition in financial structure and income state, * Evident changes in client' s attitude and behaviors, * Loss of important production, distribution and raw material channels, * Changes in the company' s business characteristics, * Increase in the cheque return ratios, * The increase of the cheque quality that is given as a collateral (giving group cheque and financing cheque), * Expanding in factoring firms (because funds used from factoring, are not seen in the company balance sheets and are not reflected to the centralization registries, * Insensitivity to the interest rates, * Loss of important customers, * Being not able to reach to the company authorities, * Speculative raw material stocking, Mistakes that are made in and after the credit period in Factoring * Giving loan before collecting necessary documents and information in other words incompleteness of the financial analysis, * Giving loan by the request of top management, * Overvaluing of the collateral that are taken against the loan security, * The new company past and inexperienced company partners, * The quality decrease of the collateral because of frequent limit increase, * Giving loan to a firm in another city instead of current city, * If it is known that the company is problematic but it is not intervened, * Non-receiving of the financial tables of the company regularly, * Assigning loan limit without taking care of the financial analysis reports, * Credit analysis to unreal financial tables, * Insufficiency of the investigations, Case Study 1- Period of crediting The company is found by the marketing department in the second period of 1998, as a target client via various sources and company visit is made. After the company visit of the marketing department, Interview form is prepared and conveyed to the Credit Department with the obtained documents. In order to make a credit study for the client company, last 2 and current year's interval balance sheet and income statements and/ or detailed trial balance, establishment journal and other trade journals, last general board activity reports, book of authorize signatures, chamber of commerce activity certificate, Tax chart are obtained. Credit department, for the financial analysis study, has made the preparations after the assurance of the necessary documents and information of the company that will be investigated. After these preparations, a visit to the company is made. The production foundations of the company are not seen because of the reason that the visit made was made to the company center. After the company visit, financial analysis report is prepared by the credit department of the factoring firm. Besides market intelligence, bank and financial institution intelligence are attached to this report. With the determination of quantitative qualitative data on the financial analysis report, it is drawn on to a conclusion whether to go into a loan relationship with the company or not. 2- Evaluation Procedure Financial analysis report that is prepared by the credit department on the company is presented to the former credit committee. The members of the former committee include General Manager, General Manager Assistant, the managers of the credit and marketing department. With the result of the financial analysis report of the client company, it is decided not to go into a loan relation with the company due to the indebtedness of the company. But at the meetings in the former committee, it is defended that the collateral that will be taken from the company were of good quality. It is decided to present the company discussed in the former committee to be presented to the credit committee. Credit committee is formed of board of directors. One of the members is, the general manager of the factoring firm, the others are the board of directors of the affiliated bank. Allocation of a limit to the company is approved by the credit committee because that the cheques and bills that will be taken as a collateral were reliable and the company was a branch customer. 3- Monitoring Period It is started to work with the company from the end of the 2nd period in 1998, and it ended on the first period of 1999. In this period with the required monitoring function of the credit department, it is traced from the Central Bank's black list if the company had a protested bill or dishonored cheque. It is looked at if loan is given against the committee decision, collateral status, return ratios of the cheques in the collateral, if there is an intensity of cheques in the portfolio, if there are cheques exceeding the maturity of loan. And TCMB factoring and leasing centralization that is published per 2 months. With the monthly monitoring report prepared by the credit department, it is wanted from the marketing department to complete the necessary absences. Current dishonored cheques and protested bills of our client are already known and no new record has been faced. It is observed that the risks were too high and they had risks in many finance companies when it is looked at the TCMB factoring-leasing limit-risk position. After allocation of the limit to the company, long term customer cheques in the collateral and intensity in the cheque portfolio attracts attention. Especially financing cheques and accommodation cheques have increased. As a matter of fact the commercial receivables of the company have decreased. In the monthly return cheque ratio reports, it is seen that return cheques have increased and instead of paying these return cheques the company tried to close these with long term customer cheques. 4- The period of closing the loan With the result of tracing the client company, negative attitudes of the company, incongruous behaviors to the collateral conditions, increase of the cheque intensity and negative intelligence of the company, the situation is transmitted to the marketing director by the credit department manager. Department managers has conveyed to the general manager that the risk of the company had increased and the will of balancing the loan by collection of the cheques in the collateral. With these information it is decided not to give loan to the company and close the current loan debt by the collateral. After going into a loan relation with the company, it is acted deliberately by taking the financial analysis study into consideration and collateral were taken in giving the loan. By the result of the quality and speed of monitoring studies cheques with a high possibility of collection were chosen into collateral and the loan was collected before it turned into a bad loan. Comment on the Case Study Rational models used for measuring the risk are used on the study of the company's financial tables. Financial status of the company is determined with the report and the conclusion is declared. With the intelligence and financial analysis, loan is given to the company because they were a branch customer and their good past in the market against the facts stated the weakness of the company' s morality, liquidity problem of the company, extension of the company' s loans from the other banks and loan use against mortgage. Furthermore, it is declared that the company was working with many factoring firms and the cheques and the bills that will be taken as collateral were of good quality. After limit allocation, it is observed that the company was in difficulty of completing the collateral in the factoring transactions and the quality of collateral has decreased. It is informed that after the loan collection, the company has lost its equity, and has gone into consolidation because of being unable to pay the bank debts. As a result, without taking care of the alarming signals, the decision of working with the company has resulted into turning to a bad loan. The main reason for this is, big competition between the factoring firms and lack of importance on the risk analysis and risk monitoring in factoring sector. Because these investigations are seen as a load and cost from the time view and the factoring firms try to connect with the customer in a short period and give loan. But after turning into bad loan, reaching the company and solving the problem causes bigger problems. Generally in factoring firms it is defended that whether the company is problematic, the collateral are secure. This is the biggest effect that causes bad loans. Working with the companies without looking at the financial power only looking at the companies they work with comes as the biggest problems. Furthermore factoring firms do not have risk monitoring departments like banks. Because qualified people have to work in these departments. This leads to cost and time problems. Because for these studies, company visits and reports, time is needed. Another reason for bad loans is not giving the loan in an appropriate way after starting working with the company or gap of collateral. Lack of monitoring departments, makes it difficult to determine if the loan is used appropriate to the committee decision. Consequently, in such a case due to the loan turning into bad loan, to complete the collateral is wanted from the customer but no conclusion is reached at. Due to the economic crisis in our country, uncollected loans in the factoring firms have become an important ratio. This situation shows that risk notion has not been established and lack of risk monitoring departments is an important absence in the sector. From the year 1994 there has been a rapid increase in the number of factoring firms by the high interest rates. Some groups were not contented with one factoring firm and they established a few more factoring firms. With the changes in the economic program in 2000, profit margins have decreased with the decreasing interest rates. With the decrease of interest rates, the positive expectations in the market has increased the loan use. In addition to this, banks limiting the loans and focusing on individual loans instead of commercial loans left the market to factoring firms. This competition in the market caused some factoring firms to give very low fund use not to loose their market share instead of having profit. They wanted to increase their transaction volumes to promote their profit margins. After the crisis in the year 2001, the troubles in the business world effected the factoring firms negatively and by the result of late collections they faced with bad loans. While waiting for an increase in the number of bad loans, its reasons started to be discussed. Some think that easy fund giving by the factoring firms have caused this when banks were not giving loans. Bad risk analysis and risk controls are defined as other reasons too. Investigation of the customers' credibility by the banks takes time and detailed information. But factoring firms, without regarding the risk analysis of the customer companies in this competition environment, let the funds use with just the intelligence of the bonds that will be taken as the collateral. This situation results an unfair competition. Because in this way, customers that need financing prefer the firms that works in this way. And factoring firms that investigate risk analysis are not preferred by the customers. And this creates a problem in the competition environment. It is seen that factoring firms are incapable of determining the bad loans and application of alarming systems due to the fact that factoring transactions are a newly used financing type. This has many reasons which are, especially lack of qualified and professional employees, profit focusing of the companies, undevelopment of the factoring market and many firms that have suspects on them of being experienced and serious, difficulties for the factoring firms in finding sources, high cost, lack of a common data bank and in-application of the factoring transactions as they are applied in the world. Nevertheless, lack of a law for the factoring firms results in late collections. After 1980's by the result of economy opening to foreign markets and fastening the foreign funds entries, banks in our country policies carried out to, banks attempted to perform new financial services by the emerging needs. Related to this, the factoring transactions which has a long history in the world, started to be put into practice in our country. Factoring application in Turkey, started by the initiation of the banks in 1988. The most important reason for the banks being innovator in this job is the experience in the sector, the technical substructure they have and their information about the market and the clients. Factoring firms were built to support the foreign trade in the beginning, but later they come to the fore with domestic factoring transactions. In fact, in the last years, banks and factoring firms have become competing against each other in giving loans. Factoring transactions are, to buy the receivables coming from the time sales with a spot price by the factor which is turning the receivables into cash. As we can understand from this definition, clients finance themselves with their own receivables, instead of other sources. A factoring firm maintains funds to his client, take the risk of non-collecting the receivables and keep the book entries. Furthermore, factoring firms have a cost to the clients against their services. This cost consists of interest, commission and fees. As the factoring firms increasing in number rapidly, known as a new financing type by the real sector in the last years, an increase in the transaction capacity can be seen. Transaction volume in the factoring sector, even continued to grow in the economic crisis. Parallel to this, factoring firms started to reserve a place in the finance sector as alternative fund sources. In this competition environment factoring firms let the funds to be used without detailed credit analysis and risk control. While risk control departments in banks limit loan usage in the last few years, factoring firms continued to give loans underlying the risk control in this conpetitive environment. Therefore, by the negative economic conditions in our country especially as big firms going under difficult conditions, the bad loans of the factoring firms have increased. For this reason, bad loans that were not in an important ratio until now started to effect the sector badly. Bad loans reaching to big ratios in the finance sector in the last periods, causes many factoring firms become smaller. Until today, researches have been made to increase the risk of bad loans to minimum with the help of alarming systems by determining before hand in banks, but factoring firms have not made a detailed study on these. One of the reasons, non application of factoring transactions in Turkey as they are applied in the world and the very small share of them in the GDP. Factoring transactions are financing type that are known and applied in the last 2-3 years. Moreover, there is still an unknown part of it. The definition of the Factoring Transactions Factoring, its first usage depending on the Phoenicians, is a well known financing type. Shortly, factoring is a funding type, that is obtained by transferring the receviables coming from the short term sales to the factor. In other words, factoring is, transaction of assignment of the rights coming from any property and service of the firms making forward sales to the financial institution named as factor. Factoring transaction is made between 3 parties which are company (client), debtor and the factoring firm (factor). Company (client): the one demands factoring service and transferring the receivables coming from the forward sales to the factoring firm. Factoring firm (Factor): the party taking over the receivables of the customer company and paying a particular part in cash in return. Debtor: the person or company that the client sold goods and loaner to the client. Functions of the Factoring Transaction Factoring firms gives service in 3 basic topics. These are; 1- Financing (Crediting) Function Among the services that is offered to the customer in accordance with the factoring agreement that is made between the factor and the seller firm, there is a financing convenience in case of the customer request. This function is described as cash management service, too. Financement of the customer receivables is made by pre-payment and discount method. 2- Service (Management and Collection of the receivables) Function Service function of the factoring includes functions as keeping the book entries of the seller company, monitoring, collection of the receivables, market intelligence. 3- Collateral (Guaranteeing of the receivables) Function Factoring firms, takes over the risk of non-collection of the receivables of the seller companies. For this reason, factoring firm takes the risk of non-collection of the receivables of the seller firm under a collateral in a certain limit. Before confirming this limit, the factoring firm makes the necessary investigations about the customers of the seller firms. If it is found out that the debtor will not pay these in the result of this investigation, factoring firm has a right not to take these receivables as collateral. If the receivable that will be taken as collateral by the factoring firm, will be invalid in the condition that the goods are found defective. Types of Factoring 1- Domestic Factoring Factoring transaction that is made between the buyer, seller and factoring firm in the same country. It changes in the direction of the client's request. 2- International Factoring International factoring, is a factoring type where the seller and buyer firms are in different countries. International factoring transactions, are made between, client company (exporter company), exporter factoring company, importer factoring company, debtor company (importer). a)- Export Factoring Export factoring is a factoring type that is applied in which the buyer is in abroad. In export factoring, the client (exporter), sells and transfers the receivable that comes from the good delivery against a debtor in a particular country to the exporter factor in his country. Here, in this type of factoring buyer takes the importer and the seller takes the exporter title because the receivable is subject to factoring. In export factoring more risk is taken compared to domestic factoring. For this reason, it is benefited from a correspondence factor. b-)Import Factoring Import factoring is a factoring type in which factor gives to the exporting company in abroad a payment guarantee via correspondent. Thus, the importing company can make an import transaction without opening a letter of credit. Export factoring is completely opposite of the export factoring. 3- Other Factoring Types * Non-Recourse Factoring * Recourse Factoring * Disclosed Factoring * Undisclosed Factoring * Invoice Factoring * Discount Factoring * Maturity Factoring * Full Service Factoring * Bulk Factoring Bad loans and its reasons Bad loans are the infringement of the reimbursement agreement between the debtor and the loan giving institution and the possibility of loss. There is a possibility of the certain amount of the collected loans turning into bad loans or to loss. Mainly interior and exterior economic reasons and wrong policies arising from business administration are factors that turns the loan into bad loan. In addition to these economic factors, other factors that effects the financial failure are interior administrative problems. Actually, interior administrative factors are the most important determinant of financial failure. But, there are many factors that cause the loan to become a bad loan. These factors can be studied under 3 topics as follows; 1- Problems arising from the business itself 2- Systematic Risks 3- The mistakes that the creditor institution made during loaning period Alarming Signals If the alarming system is taken in general, it is to take into consideration to collect every oral and written data that will be useful. Financial table Analysis: Signals obtained by the result of financial tables of the company and financial analysis made via these tables. Management Quality: Conclusions figured out from the meetings made with the company managers. Analysis of Company Activities: Obtained from the company visits and intelligence information. Loan Monitoring: Carrying out the loan conditions and control of the collateral carries importance in determining the problem. Intelligence Sources: Information obtained from the 3rd parties and press publication sources. Risk Analysis in Factoring 1- Intelligence Study Information used for intelligence; * Company itself: the most important information source in company investigation. By mutual meeting, information on the individual characteristics, morality, information level of the company managers are obtained. * Information obtained from the market: Information connected with the seller company obtained from the companies in commercial relation, banks, other financial institutions and other debtor and other receivables. * Official land registries: Here, investigations in land offices are made on the real estates of the client company and the partners. * Commercial register general and Trade journal: By trying to provide these documents, information is gained about company title, activities, partner structure, capital, establishment e.g. * Central Bank registries: Investigation is made through protested bill-dishonored cheques and execution records of Central Bank. Besides, risk centralization is published per 2 months. This information shows the risk of the client in all factoring. * Other sources: Information can be obtained from Chambers of vocation, chambers of commerce, annual operating reports of the firms, notaries, newspapers, magazines, stock exchanges, traffic registries, e.g. 2- Financial Analysis Study The goal in financial analysis, is the investigation of the past performance and to get information about the current financial structure of the factor, seller firm. * Financial Analysis study starts with obtaining necessary documents and information from the firm that will be investigated. * The period after obtaining information continues with the preparations before the visit of company and activity place. * Financial data are subjected to pre-examination and pre-intelligence is made about the company. * After that, detailed information is gained via meeting with the company authorities about the company activities. * With these information, activity place is visited and the production foundations are seen. * By these data, a convincing financial analysis report is prepared. 3- Alarming Systems * Unpayment of the enterprise on the maturity date and demanding an additional period and using this period till the end even exceeding this period, * Dishonored cheques and protested bills of the clients or legal prosecution or execution on the client, * Departure of the company owners and partners effective on the management, * Bad condition in financial structure and income state, * Evident changes in client' s attitude and behaviors, * Loss of important production, distribution and raw material channels, * Changes in the company' s business characteristics, * Increase in the cheque return ratios, * The increase of the cheque quality that is given as a collateral (giving group cheque and financing cheque), * Expanding in factoring firms (because funds used from factoring, are not seen in the company balance sheets and are not reflected to the centralization registries, * Insensitivity to the interest rates, * Loss of important customers, * Being not able to reach to the company authorities, * Speculative raw material stocking, Mistakes that are made in and after the credit period in Factoring * Giving loan before collecting necessary documents and information in other words incompleteness of the financial analysis, * Giving loan by the request of top management, * Overvaluing of the collateral that are taken against the loan security, * The new company past and inexperienced company partners, * The quality decrease of the collateral because of frequent limit increase, * Giving loan to a firm in another city instead of current city, * If it is known that the company is problematic but it is not intervened, * Non-receiving of the financial tables of the company regularly, * Assigning loan limit without taking care of the financial analysis reports, * Credit analysis to unreal financial tables, * Insufficiency of the investigations, Case Study 1- Period of crediting The company is found by the marketing department in the second period of 1998, as a target client via various sources and company visit is made. After the company visit of the marketing department, Interview form is prepared and conveyed to the Credit Department with the obtained documents. In order to make a credit study for the client company, last 2 and current year's interval balance sheet and income statements and/ or detailed trial balance, establishment journal and other trade journals, last general board activity reports, book of authorize signatures, chamber of commerce activity certificate, Tax chart are obtained. Credit department, for the financial analysis study, has made the preparations after the assurance of the necessary documents and information of the company that will be investigated. After these preparations, a visit to the company is made. The production foundations of the company are not seen because of the reason that the visit made was made to the company center. After the company visit, financial analysis report is prepared by the credit department of the factoring firm. Besides market intelligence, bank and financial institution intelligence are attached to this report. With the determination of quantitative qualitative data on the financial analysis report, it is drawn on to a conclusion whether to go into a loan relationship with the company or not. 2- Evaluation Procedure Financial analysis report that is prepared by the credit department on the company is presented to the former credit committee. The members of the former committee include General Manager, General Manager Assistant, the managers of the credit and marketing department. With the result of the financial analysis report of the client company, it is decided not to go into a loan relation with the company due to the indebtedness of the company. But at the meetings in the former committee, it is defended that the collateral that will be taken from the company were of good quality. It is decided to present the company discussed in the former committee to be presented to the credit committee. Credit committee is formed of board of directors. One of the members is, the general manager of the factoring firm, the others are the board of directors of the affiliated bank. Allocation of a limit to the company is approved by the credit committee because that the cheques and bills that will be taken as a collateral were reliable and the company was a branch customer. 3- Monitoring Period It is started to work with the company from the end of the 2nd period in 1998, and it ended on the first period of 1999. In this period with the required monitoring function of the credit department, it is traced from the Central Bank's black list if the company had a protested bill or dishonored cheque. It is looked at if loan is given against the committee decision, collateral status, return ratios of the cheques in the collateral, if there is an intensity of cheques in the portfolio, if there are cheques exceeding the maturity of loan. And TCMB factoring and leasing centralization that is published per 2 months. With the monthly monitoring report prepared by the credit department, it is wanted from the marketing department to complete the necessary absences. Current dishonored cheques and protested bills of our client are already known and no new record has been faced. It is observed that the risks were too high and they had risks in many finance companies when it is looked at the TCMB factoring-leasing limit-risk position. After allocation of the limit to the company, long term customer cheques in the collateral and intensity in the cheque portfolio attracts attention. Especially financing cheques and accommodation cheques have increased. As a matter of fact the commercial receivables of the company have decreased. In the monthly return cheque ratio reports, it is seen that return cheques have increased and instead of paying these return cheques the company tried to close these with long term customer cheques. 4- The period of closing the loan With the result of tracing the client company, negative attitudes of the company, incongruous behaviors to the collateral conditions, increase of the cheque intensity and negative intelligence of the company, the situation is transmitted to the marketing director by the credit department manager. Department managers has conveyed to the general manager that the risk of the company had increased and the will of balancing the loan by collection of the cheques in the collateral. With these information it is decided not to give loan to the company and close the current loan debt by the collateral. After going into a loan relation with the company, it is acted deliberately by taking the financial analysis study into consideration and collateral were taken in giving the loan. By the result of the quality and speed of monitoring studies cheques with a high possibility of collection were chosen into collateral and the loan was collected before it turned into a bad loan. Comment on the Case Study Rational models used for measuring the risk are used on the study of the company's financial tables. Financial status of the company is determined with the report and the conclusion is declared. With the intelligence and financial analysis, loan is given to the company because they were a branch customer and their good past in the market against the facts stated the weakness of the company' s morality, liquidity problem of the company, extension of the company' s loans from the other banks and loan use against mortgage. Furthermore, it is declared that the company was working with many factoring firms and the cheques and the bills that will be taken as collateral were of good quality. After limit allocation, it is observed that the company was in difficulty of completing the collateral in the factoring transactions and the quality of collateral has decreased. It is informed that after the loan collection, the company has lost its equity, and has gone into consolidation because of being unable to pay the bank debts. As a result, without taking care of the alarming signals, the decision of working with the company has resulted into turning to a bad loan. The main reason for this is, big competition between the factoring firms and lack of importance on the risk analysis and risk monitoring in factoring sector. Because these investigations are seen as a load and cost from the time view and the factoring firms try to connect with the customer in a short period and give loan. But after turning into bad loan, reaching the company and solving the problem causes bigger problems. Generally in factoring firms it is defended that whether the company is problematic, the collateral are secure. This is the biggest effect that causes bad loans. Working with the companies without looking at the financial power only looking at the companies they work with comes as the biggest problems. Furthermore factoring firms do not have risk monitoring departments like banks. Because qualified people have to work in these departments. This leads to cost and time problems. Because for these studies, company visits and reports, time is needed. Another reason for bad loans is not giving the loan in an appropriate way after starting working with the company or gap of collateral. Lack of monitoring departments, makes it difficult to determine if the loan is used appropriate to the committee decision. Consequently, in such a case due to the loan turning into bad loan, to complete the collateral is wanted from the customer but no conclusion is reached at. Due to the economic crisis in our country, uncollected loans in the factoring firms have become an important ratio. This situation shows that risk notion has not been established and lack of risk monitoring departments is an important absence in the sector. From the year 1994 there has been a rapid increase in the number of factoring firms by the high interest rates. Some groups were not contented with one factoring firm and they established a few more factoring firms. With the changes in the economic program in 2000, profit margins have decreased with the decreasing interest rates. With the decrease of interest rates, the positive expectations in the market has increased the loan use. In addition to this, banks limiting the loans and focusing on individual loans instead of commercial loans left the market to factoring firms. This competition in the market caused some factoring firms to give very low fund use not to loose their market share instead of having profit. They wanted to increase their transaction volumes to promote their profit margins. After the crisis in the year 2001, the troubles in the business world effected the factoring firms negatively and by the result of late collections they faced with bad loans. While waiting for an increase in the number of bad loans, its reasons started to be discussed. Some think that easy fund giving by the factoring firms have caused this when banks were not giving loans. Bad risk analysis and risk controls are defined as other reasons too. Investigation of the customers' credibility by the banks takes time and detailed information. But factoring firms, without regarding the risk analysis of the customer companies in this competition environment, let the funds use with just the intelligence of the bonds that will be taken as the collateral. This situation results an unfair competition. Because in this way, customers that need financing prefer the firms that works in this way. And factoring firms that investigate risk analysis are not preferred by the customers. And this creates a problem in the competition environment. It is seen that factoring firms are incapable of determining the bad loans and application of alarming systems due to the fact that factoring transactions are a newly used financing type. This has many reasons which are, especially lack of qualified and professional employees, profit focusing of the companies, undevelopment of the factoring market and many firms that have suspects on them of being experienced and serious, difficulties for the factoring firms in finding sources, high cost, lack of a common data bank and in-application of the factoring transactions as they are applied in the world. Nevertheless, lack of a law for the factoring firms results in late collections.