Dr. Tamás Molnár, managing director of MBH Bank’s Factoring and Corporate Finance Division and the newly appointed president of the Hungarian Factoring Association, shared his insights with the BBJ on the advantages of the service and the potential misconceptions surrounding it.

BBJ: Factoring is becoming increasingly popular as a source of financing. When does it offer a better alternative to a loan?

Dr. Tamás Molnár: Factoring can provide extremely stable working capital financing for companies, and it is much easier and faster to access than a loan. It is a better option than a loan if the company has a fundamentally stable customer base and is typically exposed to continuous customer receivables. If this is the case, the company is essentially financing its customers with its working capital (the money of its owners). Factoring means nothing more than the bank taking over this financing, thus freeing up the company’s working capital.

There is also the possibility that the bank not only pays the customer’s receivable amount but also provides insurance so that even in the event of non-payment by the customer, the company does not have to repay the money. In the case of foreign currency invoices, the arrangement can also reduce exchange rate risk, as the company can receive financing on the day the invoice is issued, and the amount is freely convertible.

Factoring is becoming increasingly popular among companies: while total domestic corporate lending grew by only a few percent in 2024, the factoring market achieved a growth rate of 23.8%. Moreover, almost half of last year’s growth came from MBH Bank’s factoring activities. This indicates that the bank is clearly on a growth path in this area.

As the President of the Hungarian Factoring Association, I also consider it my responsibility to ensure that factoring ultimately finds its rightful place in the domestic lending market. There should be a state-supported factoring program, and we should support the customer segment that we can reach through factoring.

BBJ: Is it a misconception that factoring is a service for bad clients?

TM: Although I see this perception less frequently than previously, there are still some pejorative connotations associated with factoring. But this is not true. The basic cliché is that it’s said to be expensive and only for bad clients. But neither of these is correct: it is neither costly nor intended for bad clients.

Factoring is a valuable financing product whose advantages align well with the current economic environment and play a crucial role, even during a downturn, as it enables the quick financing of receivables from stable customers. At the same time, it is beneficial during periods of growth, as companies’ need for working capital financing can increase significantly due to increased turnover. In the commercial banking portfolio, factoring is essentially available at the same loan pricing, so there is no significant difference between whether a client receives funding through a loan or factoring.

BBJ: Is it a simple application process without unnecessary administrative hoops? How does it work in practice?

TM: Factoring can even be an entry-level product, so the client does not need to have any prior relationship with MBH Bank. The application process for factoring services is significantly more straightforward than that for a loan. In the first step, nothing more is needed than to complete an application form, in which the applicant provides their customer portfolio and the gross amount they require. If we have this information, the bank can review the application within a very short timeframe, sometimes in just a few days.

If, during the review of the application, the bank determines that the customer portfolio is manageable and the client accepts the offer, the decision-making process begins with minimal administrative requirements. The entire process can be completed from start to finish within one to two weeks.

BBJ: How are digital developments shaping the future of the factoring sector?

TM: Fintech companies have appeared in the factoring market, just as in all other banking sectors. For now, however, they are more active in factoring for smaller-sized businesses and are not pushing traditional banking services into the background. Nevertheless, MBH Bank has risen to the challenge, and we want to become an innovative digital service provider.

Over the past two years, we have launched more than 100 IT developments. These innovations will be followed this year by another 30-40 digital projects to make the bank’s operations increasingly fintech-based. Our factoring service has its own dedicated IT infrastructure within the bank, which allows us to develop very quickly and flexibly. Our clear goal is to reach the point this year where we can serve our clients solely through automatic electronic data flows without any paper-based or email communications. We hope this will enable us to reach even more potential clients with our products, especially in the medium-sized and large corporate segment.

This article was first published in the Finance Business Review print issue of 2025.