:AACE CERTIFICATION 2009-2010:

I want to continue my last week issue on trade credit; now I am introducing factoring invoices.
Before start I would to recall on the trade credit. Trade credit is the credit extended to you by suppliers who let you buy now and pay later. Any time you take delivery of materials, equipment or other valuables without paying cash on the spot, you're using trade credit (1)
In fact, actually suppliers don’t like offering trade credit, most have accepted it as an industry standard and have learned how to operate and live with it. In fact, some suppliers have even mastered how to offer trade credit and use it to better position their companies with leading clients (2).
Also last week we can see a simulation on how I a trade credit will have a big impact into cash flow either supplier or client and also positioning in business.
When I do net browsing on trade credit and its related word, I found an interesting issue on factoring invoices; which is I think is set seal to my prejudge I was wrote in my 4th blog on usury. I was said previously that any payment/or business transaction which demanding a 30/60 days late payment term ( as a trade credit) is has potential to direct business performer (client/supplier) make an usury; which is hardly prohibit in Syariah.
Also they said “a Factoring” is an effective form of business financing in which you sell your invoices to a factoring company in exchange for immediate payment. It eliminates the 30 to 60 days that your customers take to pay your invoices and provides you with the working capital you need to run your business (3).
An important result of the using invoice factoring you will get predictable cash flow. Also, factoring eliminates the uncertainty of when you’ll get paid. The Factoring Rates as low as 1.5% Advances as high as 90% (3).
What I can see here that SOMEONE HAS TAKING A BUSINESS OPPORTUNITY; I would say “SHORTIME” LOAN MONEY BUSINESS.
This is what clearly prohibits in syariah as a Riba, that people having beneficial of any return/reward or compensation charge on a loan. Money is considered as a medium of exchange effectively created to be sought not in itself but for other commodities, Thus charging interest on loan is considered unjust since money in considered to be simply an intermediary between goods (4).
In further that they mention using factoring to finance your business has a number of benefits (3); they are:
1. Factoring invoices gives you predictable cash flow. It eliminates the uncertainty of when you’ll get paid by your customers
2. Invoice factoring lines are tied to your sales. Your financing line grows as your sales and your company grow
3. Factoring is easy to obtain and can be set up in days
4. Factoring invoices is ideal for established companies or startups.
So my conclusion on what I wrote start on my in previous blogs on payment to today blogs in factoring; are:
1. Syariah knowledge that “buying/selling” was created by human long-long time ago, basically to fulfill their need. That different people have various skill on creating add value to good/or services which is needed by other people; then it does create needs of “exchange”. Longtime ago people start their “exchange” by “good to good” exchange...or a “good to services” exchanges. Then later money was created to simplify the exchange process; and syariah just acknowledge money as exchanging tool.
2. Syariah prohibit usury or ‘riba” or interest; which taking return/reward on loan.
3. In fact, actually business performer does not like to have a trade credit because it is delaying their right to receive a reward on what their has deliver (good/or services). Of course, for the small business performer, even big performer, it will influence their cashflow. We taking on risk involvement here.
4. The trade credit in form 30/60 days requested from client/buyer/owner; which until now I haven’t get a clear answer what the need to delay payment to 30/60 days.
5. Several supplier which conditioned to run their business in this condition, has smart way too to transfer their “business risk” by charging interest in their interest. So, Syariah start to offended.
6. Actually this is not necessary. The client try to transfer their risk (IMPO) by delaying 30/60 days (using trade credit), but actually the supplier transfer it back within an interest. It creating un-necessary risk circulation. Payment just need to be made as soon as the services/or good delivered.
7. Then the latest, I would say this phenomenon as a “payment risk circle”, which has seen as a business opportunity; by factoring business. This is clearly a usury practice; which even clearer because the factoring business performer loan compensation charge business. But I think even worse, cause the 1st usury practice done by the “smart” supplier which include interest in their invoices, then the 2nd usury practice done by the factoring business.
B/R, Farid Maloni

List of citation:
(1) http://www.entrepreneur.com/encyclopedia/term/82538.html
(2) http://EzineArticles.com/?expert=Marco_Terry
(3) http://factoring.qlfs.com/
(4). “Managing financial risks of sukuk structure”, A dissertation of Master of Science, Ali Arsalan Tariq, Loughborough University, UK.