The ABF Journal was provided with an opportunity to review the 150-plus page report. What follows are a few exhibits with related commentary on a sampling of data that was excerpted from the report.
The report encompassed many different aspects of a factoring organization and its business including: factors segmented by gross invoices funded; average/ideal transaction size; market specialty; new business sources/ratios; geographic regions; company/business types; years in business; employee composition and compensation data; gross revenues — actual and forecast; pre-tax margins, as well as a host of portfolio quality metrics and key performance indicators.
Most Active Sectors
According to the IFA study, the largest percentage of gross invoices funded (GIF), or 26%, were originated with customers in the transportation sector. This was followed by the services and manufacturing sectors at 13.2% and 9.8%, respectively. Rounding out the top five were temp agencies (8.9%) and energy related companies (5.5%). In the aggregate, these five sectors accounted for 63.4% of the total GIF reported by the 168 factors that responded to this section of the survey.
A closer look revealed that the largest factors — those with more than $100 million in funded business — garnered almost 32% of their GIF volume in the transportation segment versus only 15% reported by the smallest factors, i.e., those with less than $5 million in 2012 GIF. In fact, when viewed from the perspective of the smallest factors, the services industry segment ranked highest at 19.7%, followed by transportation, as noted above, and manufacturing at 10.1%.
Primary Funding Sources
On an overall basis, a credit line with a bank scores highest as the primary source of funding for a factor. However, upon closer inspection, the largest factors ($100MM+ GIF) said bank lines of credit were the most important (47.3%) versus the smallest factors (<$5MM GIF) that noted only 13.8%. This dichotomy is shown more clearly when you consider that unlike the largest factors, the smallest firms depend much more heavily on the “personal finances of owners and/or partners” as their primary source of funding to the tune of 57.6% versus 16.7% for the largest factoring firms. All factors, with no regard to GIF size, also depend on “private investors” with an overall 20.6% — the range is 16.4% to 22.4%, largest to smallest.
Referral Source Effectiveness
Survey respondents were asked to provide insights into the “effectiveness” of their referral sources. “Word of mouth referrals from existing clients” scored at the top as being “very effective” at 47.5% overall — the range from largest to smallest firms was 52.1% to 40.0%. Referrals from brokers and banks scored second and third highest, respectively, as being “very effective” as referral sources, with the former showing overall at 35.3% and the latter 23.8%.
New Business Sources
Survey respondents were asked to provide insights into their sources of new business. A review of the responses showed that the #1 source for new business was a “word of mouth referral from a client,” or 33.1% overall (the range from largest firms to smallest firms was 26% to 39%). This was followed closely by the second highest scoring source of new business: “other word-of-mouth referral” (e.g., CPA firm), which showed 25.4% overall for the 164 factors that responded to this question.
2013 Versus 2012
When asked about anticipated change in 2013 revenues versus 2012, a large majority of factors, or 83.5%, said they expect to see year-over-year increases with 38.2% saying “greater than 20%” compared with only 7.1% that are forecasting decreases and 9.6% that anticipate “no change.” The year-over-year change in 2012 revenue versus 2011 showed 78.2% reporting increases, with 38.1% saying 2012 revenue increased more than 20%. Almost 55% of the respondents with gross invoices funded of less than $5 million said they anticipate revenues to increase more than 20% in 2013, while those reporting GIFs of $5 million to $100 million and more than $100 million, respectively, expect 40% and 26.5% year-over-year increases.