An analysis of factoring arrangements : the perspective of the Maltese Public Administration

Abstract

Factoring arrangements are another way how enterprises are provided with immediate financing and hence, help to keep their liquidity position attainable. In this regard, factoring arrangements were becoming more common amongst suppliers at one point in time. This was evidently seen within the Maltese public administration, where payments engaged in a factoring arrangement were also on the increase. This study researched the effects factoring arrangements have on the Maltese public administration and whether such arrangements are still on the increase at the same rate. This study shows what a factoring arrangement entails together with the advantages and disadvantages that exist within a factoring arrangement within the Maltese public administration. In this regard, factoring arrangements are regulated by the Civil Code (Article 1484A.(1)) and Treasury Circular 4/2007. Moreover, information was sought from relevant offices to obtain information as to how factoring arrangements are currently being handled and to also have a better view of how common accounting officers deal with such arrangements. However, this study has shown that since arrears were addressed within the pharmaceuticals sector, where factoring arrangements were most common, factoring arrangements were no longer increasing at the same rate within the Maltese public administration. Hence, this research concluded that factoring arrangements within the Maltese public administration are not as common as they once were. Nevertheless, accounting procedures for such arrangements are still being regulated and accounting officers are being guided by the Treasury Department on how to process such payments. No comparison could be made with other EU member states in view of lack of information on the subject. This study concludes that even though factoring arrangements may be attractive for the private sector, the same cannot be said with regards to the public sector, despite the fact that support is being provided by the Treasury Department. Nevertheless, research shows that further evaluation is needed to establish whether the necessary regulatory framework that was proposed was actually introduced. In addition, new guidelines shall be provided once an accrual based accounting system is introduced, so that accounting officers will be aware how factoring arrangements shall be processed with the new system. In this regard, a revised Treasury Circular will serve as resourceful guidance and enable accounting officers to work effectively and efficiently. Subsequently, it will ultimately result in better use of resources.