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Factoring Poised to Provide Stable Revenue, Offsetting COVID-19 Uncertainty for Non-Bank Lenders and Banks
May 11, 2020
Secured Finance Network Survey Analysis Suggests Solid Prospects for Factoring
NEW YORK, NY, May 7, 2020 ─ The results of the Secured Finance Network’s (SFNet’s) Annual Factoring Survey are in. And while the survey’s comparison of factoring activity between 2018 and 2019 is valuable, ongoing impacts of the COVID-19 pandemic are likely to overshadow the significance of data the survey revealed.
Factoring is the process by which a buyer—a non-bank lender or bank affiliate referred to as a “factor”—purchases the accounts receivable of a client, at a discount. Clients are typically companies involved in textiles, apparel, business services, shipping, transportation and other industries that want to improve cash flow, according to SFNet’s 2019 Secured Finance Market Sizing & Impact Study.
According to the survey results, the factoring industry saw only minor changes in the 2018-2019 time period, except for a significant increase in credit losses, most likely attributable to the competitive environment through 2019. Long-term benign credit conditions and very liquid capital markets, combined with a slowdown in economic growth, set the stage for an increase in losses and decreased profitability.
“Receivables factoring is an ‘all seasons competitor’ in the world of finance,” said Terry Keating, president and CEO of Accord Financial, Inc., a factor and asset-based lender, and member of SFNet’s Advocacy Committee, who provided commentary on the recent survey. “It has been around for hundreds, if not thousands, of years, and so I am confident that factoring, like our economy, will weather the current stormy global conditions. In fact, it is more likely that the industry will grow and thrive during this time of stress and uncertainty.” This is because factoring can provide liquidity to businesses facing financial and operational stress and uneven cash flow, he explained.
Only comparatively minor changes occurred within the factoring industry between 2018 and 2019, according to the survey. Total factoring volume fell 8% in 2019 from 2018, with reductions in both domestic (7.6%) and international (11.3%) volumes, a decline likely attributable to competitive conditions and a generally favorable economic landscape. The disproportionate reduction in international factoring is most likely tied to changes in trade flows related to the tariff/trade war that was being waged throughout 2019.
Geographically, U.S. factoring volume shifted away from the west, southwest and midwest, with significant increases in the northeast and southeast. The industries served by factoring grew slightly more diverse as declines observed in every traditional industry were offset by a significant increase in the “Other” category. This may point to a greater acceptance of factoring across a broader range of industries.
Factoring revenue was up slightly, with a small increase in revenue as percentage of volume, indicating stable and perhaps moderately increased yields. The mix of revenue showed some changes, with a decline in interest income offset by increased service fee and other income. This may point to factors being more cognizant of how they “package” their deals. Staffing by factors was down by just 2.2% in 2019 from 2018.
The survey was conducted for SFNet by Westat, an independent market research firm. Seven factoring companies participated.
Follow this link to download the full version of SFNet’s 2019 Annual Factoring Survey Highlights: https://www.sfnet.com/docs/default-source/data-files-and-research-documents/sfnet-annual-factoring-non-participant-report-2019.pdf?sfvrsn=6394daea_2
About Secured Finance Network
Founded in 1944, the Secured Finance Network (formerly Commercial Finance Association) is an international trade association for banks and finance companies involved in secured finance, which includes loans and other financial transactions secured using a borrower’s asset/s as collateral. Factoring is one form of secured finance. With more than 1,000 member organizations throughout the U.S., Europe, Canada and around the world, SFNet brings together the people, data, knowledge, tools and insights that put capital to work. For more information, please visit SFNet.com.
Michele Ocejo, Director of Communications
Secured Finance Network
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