The reason why LCs are still the dominant form of trade-financing in Asia is due primarily to the financing arrangements of exporters and the attitude of their banks. Typically, exporters will continue to require working capital financing. Banks are familiar and comfortable with providing this within the relatively safe framework provided by self-liquidating documentary trade. However, risks to the bank can be higher if they provide poorly structured working capital support for customers' trading on open account. There are many different types of receivables financing.
Factoring is another popular type of receivables financing.
From the financier's perspective, it is more structured and secure than lending against a pool of receivables. The factor is then responsible for collection of the receivables. There are many advantages to factoring for a business, the primary one being better ability to manage cash flow. In addition, since factoring typically provides financing up to a relatively high percentage of approved receivables, the amount of financing available tends to move in line with, and hence support, business growth. When additional collateral, such as property, is available, this can be used to support other borrowing requirements if needed.