Pictured: Tina Capobianco, moderator, and panelists Scott Adler, Andrew Barone, Terry O'Connor, Ben Rutkevitz and Max Toledo

SFNet’s Factoring Market Sector Update webinar on July 9 featured panelists representing industries including staffing, retail, healthcare and e-Commerce to discuss current trends and challenges.

Tina Capobianco, senior vice president, Operations, J D Factors served as moderator. Panelists included: Scott Adler, senior EVP, national regional manager, Merchant Financial; Andrew Barone, senior vice president, Rosenthal Capital Group; Terry O’Connor, executive vice president & treasurer, Single Point Capital; Ben Rutkevitz, senior vice president, Alleon Capital Partners, LLC; and Max Toledo, executive vice president-chief marketing officer, Bridgeport Capital Services.

Factoring continues to be a relationship-based business offering speed and flexibility for clients, but as industries change new challenges and opportunities arise.

Market Challenges and Changes

Considered a niche space for factors with a higher yield, the transportation factoring space is seeing more automated processes with greater efficiencies to meet competition, driving down rates. Fraud and identity theft are common in this sector due to technology that can be easily manipulated. Single Point Capital checks IP addresses on contracts and applications and uses tools to verify driver’s licenses.

“We try to stay up to speed on all the best technologies,” said Terry O’Connor of Single Point Capital, a freight factor. “We're mid-market, but we provide small-shop customer service. We have the same great technology and automation that our large competitors do because that is required to play in the space. But I feel like every time we come up with a new technology or tool to fight fraud, the fraudsters are right behind us, finding a new way to beat it. It's a constantly evolving challenge. You always have to be finding new ways to beat them.”

Alleon Capital Partners, LLC, whichfunds medical providers who bill third-party government and commercial health insurance carriers, has seen significant changes since the company was founded in 2009 before the Affordable Care Act (ACA) was implemented.  With the ACA came new subsectors within healthcare, such as substance abuse and autism care, that healthcare insurance is required to cover.

“We've seen huge growth in those two sectors,” said Alleon’s Ben Rutkevitz. “Another continuing change is the shift from fee-for-service to value-based care. Right now, most medical providers see a patient, bill the insurance carrier, and get paid for their service. But Medicare and the government want to shift more towards a medical provider who will get paid for the quality of care, meaning how often they are keeping patients healthy and out of the hospital. As someone who factors and finances healthcare receivables, that's a completely different model and it’s a big change that we've seen lately.”

Rutkevitz has also seen changes in compliance. In healthcare, insurance companies or Medicare can audit medical providers and, if they find overpayments, can recover the money by withholding future payments.

“It's called Out of Future Receivables, which is frightening for a receivables lender,” Rutkevitz said. “For us, we focus on the quality of the management team and the principals and ongoing compliance to make sure that we're catching any red flags before an insurance carrier will.”

For the staffing industry, labor shortages continue to be one of the bigger challenges.

“There's been so much contraction post-pandemic where the market fell 10% in 2023 and 14% in 2024,” said Max Toledo of Bridgeport Capital, a collateral-based lender. “There's a lot of challenges within the staffing sector, but it's a great sector to factor because there is no dilution.”  

Toledo added that healthcare industry staffing post-Covid has been a challenge.

“Since the contraction, a lot of hospitals don't have the money they had from Covid,” Toledo said. “That's why I've seen Steward Healthcare go under. When our clients lose a contract, in the old days they replaced it right away. Now their business is down 10-20, 30%. So, it's difficult for them. That has to be factored in when you're looking at new clients to bring on.”

Andrew Barone at Rosenthal Capital Group (RCG), a longtime provider of financing receivables and inventory, said one of the biggest changes he has seen in the e-Commerce space is the way clients are selling. Many RCG clients are selling Direct to Consumer on Amazon Marketplace, using Fulfillment by Amazon (FBA) and having Amazon fulfill the product once the sale is made.

“Not all of our clients generate an actual receivable where we're factoring it, but it's part of our borrowing base,” Barone said. “Amazon has different avenues that you can sell on, such as a vendor central program, which is very much wholesale, where they basically buy and pay on terms moreso for companies that are selling staple products, and products that are easily predictable, and Amazon controls the price. This is a little different, because clients are paid every two weeks for the prior two-week sales. So, there is a 14-day lag or so where a receivable or quasi receivable is generated, in some cases, due to seasonality and cash flow issues. We lend on these for our clients. Then there's more traditional wholesale that's adapting where the retailers are taking a lot less inventory risk.

“Walmart.com and Nordstrom.com, for example, allow brands to use the traffic of the retailer’s website and sell product and fulfill it on their own. At the same time, the retailer doesn't have to take any inventory risk and then they wind up paying 30 days later, once goods have already sold. So, they make a marketplace fee and it's been a good way for retailers to test new brands and see who they actually want to put large stock orders for.”

Rosenthal’s clients are also taking a pure direct-to-consumer approach and selling more products on their own websites. Without a receivable generated, Rosenthal is lending on inventory, and getting paid by the client’s credit card processors, which usually pay out every one to three days.”

Merchant Financial’s Scott Adler said Merchant also finances DTC businesses, despite it being riskier.

“The pecking order of a balance sheet is cash, then receivables, then inventory,” Adler said. “Inventory is a risky asset to lend on, especially in the fashion world where it’s in today and gone tomorrow, so you constantly have to watch and do appraisals. We're doing more appraisals now than we have ever done. We're staying on top of clients, and the clients appreciate it because they don't want to get themselves in trouble. A lot of the clients just look at the top line and not at the bottom line. In the DTC world, your biggest expense is marketing dollars. Marketing is an astronomical number, where you could spend $40-$50 million, and you could still be losing money because you need those marketing dollars to get your name out there. So, you're not turning profits until you're doing $70 million in sales. It's a whole different world of selling.”

Handling competition

Factoring is more competitive than ever, with pressure to offer lower rates and better terms. Factors continue to differentiate through speed, flexibility, and personalized service, and there has been adoption of automation and AI tools to keep pace with competitors and address fraud.

“I think our sector is very competitive over the last five years or so, whether it’s the smaller, under-$10 million segment or a larger segment above $10 million,” Barone said. “On the smaller side, we're competing against other factors and ABL lenders and even other alternatives, such as FinTech lenders doing payable or revenue financing. On the larger side, we're seeing more private credit shops getting involved on the $10 million -plus loans and they are pretty much lending out of funds most of the time. So, they have to deploy capital. We see that deals are getting more aggressive in terms of deal structure and pricing than they than they ever have been prior to COVID.” 

While the healthcare space isn’t as competitive as retail or transportation, Rutkevitz hasseen larger institutional lenders doing ABL in the healthcare space competing on deals that they previously had not.

“On the smaller deal size, we're seeing competition from MCA quasi factoring type companies who will entice some borrowers with quick funding, easy money. We’re in that in-between area between clients who will take an MCA and clients who will go to some of the larger institutional lenders,” Rutkevitz said. “We can usually offer more than the bank can, because the bank doesn't really like looking at AR only.  A lot of medical providers have a lot in AR, and the bank wants to give them a line of credit or a term loan based on the revenue. We can match the cash flow to the receivable.”

When asked by an attendee about the use of AI, all panelists said they have implemented the use of AI in at least part of their business, the most common being Optical Character Recognition (OCR) technology.  With some competitors offering 24/7 available funding, factors need to stay up to speed with automation.

Economic and Political Impact

Uncertain and fluctuating tariffs significantly impact importers and their lenders, affecting product costs, inventory strategies, and ultimately consumer pricing.

“Tariffs are a tremendous issue in our world. You just don't know how much goods are going to cost coming in,” Adler said. “Two months ago, tariffs were so high Chinese manufacturers stopped importing. Some people gambled and put goods in bonded warehouses, and that mostly worked out for them because they didn't have to keep it there very long. But it's a big question, because we're not sure where the tariffs are going to be. The retailers push back; they don't want to pay. The consumer is ultimately going to be paying for it.

“Factories in some capacities absorb a little, but it's never enough and, how much can you increase prices before the consumer demand starts to pull back on buying those goods?” Barone added. “So, it's a very challenging time. Clients are battling it out and there is more to be seen.”

Rutkevitz has seen some disruption with clients importing medical devices from China, but Medicaid cuts from the “Big Beautiful Bill” will more specifically affect medical providers.

“We're looking at  rural hospitals, which deal a lot with Medicaid and that could be a big factor into their solvency. It’s something to keep an eye on,” he added.