The European Commission has approved a €2.6 billion (PLN 11.5bn) Polish state guarantee on factoring products scheme to support companies affected by the coronavirus outbreak. The scheme was approved under the state aid Temporary Framework. Factoring is a financial service providing liquidity to the real economy as it involves the payment of invoices before their final due date.
It is an alternative source of working capital for companies to bank loans. The scheme is open to enterprises of all sizes and will be implemented by the national development bank, Bank Gospodarstwa Krajowego (BGK). Under the scheme, guarantees will be available both for recourse factoring and for reverse factoring. Recourse factoring is a product whereby the seller of a good or service (the “factoree”) receives immediate payment of an invoice from the factoring company at a small discount. The factoring company will in turn be paid by the buyer at the payment date indicated on the invoice. In case of non-payment, the factoring company has the right of recourse to the factoree as it would have in case of any ordinary loan. Reverse factoring is a means of supply chain financing. In this instance, the “factoree” is the buyer of a product or service while the seller can be an indirect beneficiary in the form of earlier payment.
In case of default, the factoring company also has a right of recourse towards the factoree so that the transaction is equally comparable to a normal loan. The Commission assessed the measure under EU state aid rules, and in particular Article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU), which enables the Commission to approve state aid measures implemented by member states to remedy a serious disturbance in their economy. The Commission found that the Polish measure is in line with the conditions set out in the Temporary Framework as the covered products are equivalent to loans.
The Commission concluded that the measure is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a member state, in line with Article 107(3)(b) TFEU and the conditions set out in the Temporary Framework. On this basis, the Commission approved the measures under EU state aid rules. Executive Vice President Margrethe Vestager, in charge of competition policy, said: “This Polish measure, with an estimated budget of €2.6bn, will further support companies that are severely affected by the coronavirus outbreak through factoring, a financial service that provides an alternative source of working capital. This will protect companies’ liquidity needs and help them continue their activities in these difficult times. We continue to work in close cooperation with member states to find workable solutions to mitigate the economic impact of the coronavirus outbreak, in line with EU rules.”