Regulating the factoring market in Ukraine could increase capital turnover by 2.5-3 times for both the public and private sectors. This may sound bold, but the actual figure could be even higher. Let me explain why.
Today, Ukrainian businesses operate in conditions where the speed of cash flow is often more important than the volume of money itself. This is particularly evident when working with the government, which remains the largest customer and shapes a significant portion of economic demand.
Factoring is an instrument that removes the main barrier for businesses—delayed payment. It is a fundamental tool that allows suppliers to receive payment immediately after fulfilling a contract by transferring the right of claim to a financial institution. Businesses gain liquidity, financial institutions receive predictable income, and the government benefits from a broader pool of participants and better pricing.
The effect of factoring is more production cycles, greater participation of micro, small, and medium-sized businesses, increased competition, and lower procurement costs for the government through reduced cash risk premiums.
This is a clear win-win model for all parties.
Looking at European practice, factoring in public procurement is not an innovation but a standard. It works thanks to clearly defined rules that protect all parties. The right of claim can be transferred, the financial institution is legally protected, and the customer is obligated to make payment to the new creditor.
It is precisely this certainty that creates trust in the instrument—and thus the market itself.
For Ukraine, which declares its movement toward the European economic model, this appears to be an obvious step. Moreover, this is not about complex reforms or new institutions.
What do we actually have?
Today we have a situation in which the economy artificially limits itself. Businesses lack access to liquidity, the financial sector cannot realize its potential, and the government is forced to operate in a less efficient model.
A financial institution entering into factoring of a government contract does not have sufficient legal protection. It is not a party to the agreement with the government customer, and its right to receive payment is not directly guaranteed. In effect, this means it assumes risk without adequate instruments to control it.
Under such conditions, the market behaves absolutely rationally: financial institutions simply do not enter this segment.
What needs to change?
This involves fairly targeted changes to legislation that explicitly permit factoring of government contracts and establish the financial institution's right to receive payment.
Essentially—one clear provision that removes legal uncertainty.
The market will do the rest itself. Businesses will begin participating more actively in tenders, financial institutions will finance these contracts, competition will increase, and prices will decrease. This is a case where all parties benefit without exception. Moreover, the market itself will mitigate—guess what? Exactly—corruption.
The demand for factoring in Ukraine already exists. The only question is when the rules that allow it to function will appear.
