TSL Express Daily News

If there’s one word that defines the factoring industry during the early part of 2025, it’s “adaptation.” As economic uncertainty collides with regulatory, geopolitical, and technological forces, factoring continues to be the bedrock financing solution for businesses in need of working capital.

The Secured Finance Network’s 2024 Year-End Factoring Survey reveals an industry that is both steady in its fundamentals and evolving in response to dramatic shifts. Volume was down slightly, but client counts are surging. Margins are compressing, but innovation is on the rise. As Oscar Rombola aptly notes in his article in the upcoming April/May issue of The Secured Lender magazine, factoring is at a crossroads—and those who embrace change will come out ahead.

Volume Down, Clients Up: A Nuanced Landscape

Let’s start with the numbers. According to the SFNet survey:

• Overall factoring volume declined 3.9% year-over-year.
• U.S. volume slipped 4.3%, while international volume rose 3.4%.
• Total factoring clients surged 24.1%, with U.S. clients up 19.8% and international clients soaring 48.2%.

What does this tell us? The appetite for factoring is growing, even if transaction values are tapering. As Rombola observed, businesses are turning to factoring amid tightening credit and volatile interest rates—and many are first-time users. Industries like freight, healthcare, and manufacturing are especially active, driven by supply chain pressures, regulatory lag, and prolonged payment cycles.

Macroeconomic Drag Meets Tariff Tension

The U.S. economy ended 2024 with 2.4% GDP growth, driven by consumer and government spending. But cracks have emerged. Retail sales fell 1.4% in January and consumer confidence hit a 12-year low in March. New tariffs from the Trump administration—a 10% universal import duty and 104% on Chinese imports—are adding new layers of uncertainty, particularly for industries like apparel and textiles, which still represent 49.3% of factoring volume.

Rombola highlighted these tensions in his analysis of manufacturing factoring: “Tariffs and rising input costs are squeezing margins and delaying production.” Factoring firms must monitor global trade policy closely and adjust risk models accordingly.

Meanwhile, the Federal Reserve remains cautious. Core inflation at 2.8% Y/Y in February continues to challenge its 2% target. While the Fed projects two rate cuts in 2025, markets are betting on four, signaling fear of stagflation. That’s a dual-edge sword for factoring: tighter bank credit will increase demand, but also heighten risk.

Portfolio Stability in the Face of Risk

Despite the macro headwinds, factoring portfolios remained healthy in 2024:

• Write-offs ticked up slightly to 0.18% of volume, still below long-term averages.
• Loan loss provisions were conservative at 0.16% of volume.
• Advance rates improved by 93.6 bps, reaching 84.3%, while DSO remained steady at 45.8 days.

Rigorous credit vetting, especially in volatile verticals like freight and healthcare, is needed Carriers are facing margin compression, broker risk, and digital disruption from platforms like Uber Freight. Healthcare, meanwhile, continues to wrestle with HIPAA compliance, slow reimbursements, and consolidation.

Technology, Compliance, and Margin Pressure

Revenue rose 21.0% half-over-half, but expenses jumped 31.3%, eroding pre-tax income by 2.1% year-over-year. Staff investments, particularly in business development (+20.8%) and underwriting (+39.1%), reflect the industry's pivot toward smarter origination and risk tools.

Yet, the pressure is real. Fintech challengers are offering near-instant invoice finance. As Firms must double down on digital underwriting, fraud detection, and cybersecurity, especially as threats like invoice fraud and phishing become more sophisticated.

Client Needs Are Shifting—And So Is the Product

The type of factoring being used is evolving:

• Non-recourse made up 83.8% of volume, while full recourse remains the dominant model by client count (78.2%).
• Notification factoring represented 54% of volume but a whopping 97.7% of client relationships, up 9.2 pp year-over-year.

This signals a shift toward more open and digitally enabled borrower relationships. Factoring firms are no longer just silent funders—they’re integrated financial partners.

Outlook: Strong Fundamentals, Smart Adaptation

The Factoring Sentiment Index held steady at 70.5, suggesting continued optimism. But that figure preceded the announcement of broad-based tariffs. The real test will come in the second half of 2025 as supply chains absorb the impact.

Still, history shows that factoring thrives during financial dislocation. As banks pull back and liquidity gaps widen, collateral-based lenders step forward.

Final Word: Resilience with a Tech Edge

The 2024 SFNet data backs this up.

Invest in technology. Sharpen your credit tools. Embrace compliance. Diversify clients. Monitor trade flows. That’s the blueprint.