Factoring: a popular form of business financing globally

Factoring is a financial service leveraged by businesses around the globe to maintain healthy cash flows, fund growth cycles and save time in the back office.

Under a factoring agreement, a business sells its accounts receivable to a third party, known as a factoring company, to boost its working capital. But it doesn’t end there. Partnering with a trusted and expert factoring company is like having an entire debtor administration and credit control team working for the business, because the factoring firm handles these functions, freeing up the business owner and administrative team to focus on other areas of their roles.

According to FCI, the global representative factoring network and association with members in more than 90 countries, “Factoring is a complete financial package that combines working capital financing, credit risk protection, accounts receivable book-keeping and collection services.”

All these services combine to support stability and growth in many economic sectors, especially among small and medium enterprises (SMEs).

The state of factoring globally

Research by the FCI reveals that factoring volume reached over EUR 2.35 trillion in 2016. While this is slightly down from EUR 2.37bn in 2015, deputy secretary general at FCI Erik Timmermans explains that factoring is still growing in popularity in most regions of the world:

“Banks have been shifting SME lending from non-secured lending into receivables finance and factoring. Factoring is also moving up from SMEs to larger corporates who have discovered this as a stable form of financing.”

The FCI notes that the decline in overall factoring volumes was largely due to significantly lower demand in China and the volatility of the British pound. Many other regions saw factoring volumes continue to increase, echoing the steady growth trend that the global factoring market has seen for the past two decades – expanding 9% annually on a CAGR basis. Factoring volumes rose by 2.5% in Europe, 9.4% in the Americas and 14.1% in Australia, for example.

What about Africa?

Closer to home, Africa saw a dramatic increase in factoring volumes during 2016, reaching a total of EUR 27.6 billion factored on the continent. This represents a 47.6% year-on-year growth. South Africa is the largest factoring market in Africa, accounting for 85% of the region’s factoring volumes.

What drives demand for factoring services?

In the wake of the global financial crisis and at a time when economic conditions are seeing many banks tightening their lending, factoring provides a stable and accessible form of alternative business financing.

Add to this the fact that most factoring firms provide businesses with robust credit-risk protection services, and it’s no surprise that the demand for factoring solutions is expanding rapidly in South Africa and many other regions around the world.

Keen to find out more about factoring?

Merchant Factors is the leading independent factoring company in South Africa. Established in 1988 to offer local businesses an alternative to traditional bank loans and overdraft facilities, Merchant Factors specialises in local and cross-border finance – customising its facilities to suit the unique business needs and operational cycles of its diverse clients.

Another advantage of being an independent financial services provider, is that Merchant Factors can offer the shortest turnaround from application to pay-out in the industry.

Ready to join 2000+ businesses, who are achieving their financial goals through factoring? For fast, flexible finance – contact Merchant Factors today

Finance beyond the Numbers.