The factoring finance market is valued at $3.2 billion in 2021 and is estimated to grow 79% to $5.8 billion by 2031, making the sector a solid offering within the wider working capital industry There is no doubt about that.
Dating back to the Middle Ages, factoring began when merchants and traders used accounts receivable as collateral for loans. It was not until the 18th century that accounts receivable was introduced by textile merchants as a means of generating cash flow.
Over time, this practice became widely adopted, and in the 20th century, commercial companies specialized in purchasing receivables.
The global factoring industry has been growing and expanding for centuries with no signs of slowing down.
So why has factoring survived so many economic waves over the centuries?
Factoring has become a trusted and essential practice in many industries. Factoring allows companies to seize the opportunities presented by market volatility when other sectors face challenges while facing economic downturns. If a bank is unlikely or unwilling to underwrite a high-risk account, this will be an outreach to other lenders, factors, and ABL specialists who understand the value they can derive from lending against accounts receivable and inventory. open the door. They are experts in managing risk and providing maximum liquidity to borrowers.
From a customer perspective, banks are tightening underwriting terms, interest rates are rising, funding costs are high and the threat of recession looms. This means that factoring continues to be an accessible and affordable option for customers who do not qualify for traditional factoring. financial instruments.
If banks are moving away from risky business, why are factors picking up on it?
Factor uses its own internal evaluation processes and metrics to determine whether a business meets its criteria for funding, ultimately basing decisions on the value of its receivables rather than the creditworthiness of the business. To do. As a result, Factors can lend money in situations where traditional lenders would not. Still, factors should be concerned with minimizing risk.
At the core of this operation is a trusted platform that: solifi factoringstreamlines element processes and enables efficient vendor management, multi-data-point imports, and workflow automation.
What is the crux of factoring finance success?
Historically, factoring has referred to financing through invoices, including accounts receivable. Over the years, the emergence and increasing use of inventory factoring has surfaced. Inventory factoring refers to the ability of a factoring company to generate revenue by taking inventory and reselling it.
The expansion of ‘traditional’ factoring, including inventory factoring, gives clients the opportunity to diversify their portfolios to minimize risk and drive growth.
Additionally, inventory factoring allows lenders to strengthen their relationship with their customers by allowing them to finance different types of collateral. In unpredictable economic conditions, various factors can further strengthen this relationship and allow us to be a true partner with our customers.
Whether in leasing, dealer finance or wholesale finance, an experienced asset finance partner is a factor game changer. Because with our wealth of knowledge and expertise, Factor can leverage the process and provide financing without the need to purchase additional software. , additional modules or costs.
So what’s the catch?
Like all financial instruments, factoring is subject to the same risks caused by fraud. Factors operate in volatile conditions, so it is critical to remain vigilant and be able to quickly identify threats that can minimize profits and increase risk.
The most dangerous types of fraud are small value incidents that are frequently overlooked, rather than isolated large-scale large values, often resulting in desperate borrowers accumulating significant fraud value levels over time. make it possible.
Customers don’t always make the right decisions when they’re under financial stress.Therefore, proven software such as solifi factoring Significantly reduce risk and track customer behavior by analyzing and providing real-time insights that help determine whether a particular instance or behavior is a trend of concern or simply a poor decision You can improve the abilities of the elements.
This is where modern factoring software plays a key role in helping factorers navigate risk efficiently. Automation and data analytics can detect new suspicious activity in accounts receivable in real time, enabling factors to combat fraudulent invoices, verification discrepancies and payment fraud.
With a reliable factoring software solution, you can establish various criteria, leverage the system to automatically calculate and approve or reject transactions, generate comprehensive and customized reports, and provide real-time notifications and alerts. Receiving allows you to manage factoring and manage risk efficiently. APIs manage multiple data sources to get a complete picture of factors and ensure that overall risk is within acceptable levels.
In conclusion, factoring will continue to be a growth area in 2023 and beyond, and customers will look to factoring as a way to provide much-needed cash and liquidity to their organizations.
It is important that the factors seize this market opportunity. This can be supported by secure and scalable software solutions that improve process efficiency and manage and minimize portfolio risk.
