The report encompassed many different aspects of a factoring organization including: factors by gross invoices funded, average/ideal deal size, market specialty, new business sources/ratios, geographic region, company/business type, 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.
Importance of Transportation Sector
As it turns out, according to the IFA study, the largest percentage of gross invoices funded (GIF) during 2010 came from business in the transportation sector. This was followed by the services and manufacturing sectors, in that order, with a 13.7% and 10.5% share, respectively, of the total.
A closer look revealed that the largest factors — those with over $100 million in funded business — garnered 29% of their volume in the transportation segment versus only 11% reported by the smallest factors, (i.e., those with less than $5 million in yearly funded volume). Actually, when viewed from the perspective of the smallest factors, the services industry ranked highest at 15.4% followed by transportation and manufacturing following closely behind at 10.9%.
When viewed from the perspective of all factors, the transportation, services and manufacturing segments accounted for a combined 45.4% share of the total. Distribution and construction together added 12.7% more, so it appears that on a GIF basis, the majority of 2010 invoice fundings occurred with these top five sectors, which accounted for 61.3% of the total.
New Client Percentage
In the business development section of the survey, participants were asked to provide the percentage of clients during 2010 that were new. The average for all factors was 39.1% with the smaller companies, those with less than $5 million in GIF, reporting a 57.4% new to existing customer ratio versus those with $5 million to $100 million and over $100 million, respectively, noting 36% and 25.7% of their 2010 GIF were new.
By way of comparison, the survey included data from 2009 that showed a 31.4% average new client to existing customer ratio for all factors reporting, almost eight percentage points lower than 2010. Asked to provide an indication of this same ratio anticipated for 2011, the study showed a much less optimistic 22.9% for all factors. The same data for 2007, the last full year before the credit crisis began, reflected a new to existing client ratio of 39.5%, only slightly higher than the ratio of 39.1% in 2010. It should be noted that this portion of the survey included only the 32 factors that participated in the 2007, 2009 and 2011 studies.
New Business Sources — Referrals Rank Highest
Survey respondents were asked to provide insights into their sources of new business. A review of the answers showed that the #1 source of new business was “other word of mouth referral” (e.g., CPA firm) which represented 31.9% of the total followed by “word-of-mouth referral from client,” which ranked #2 at 28.8%.
With the exception of respondents with GIF in 2010 of less than $5 million, where this trend was reversed, both those with $5 million to $100 million of GIF and the largest — those with GIF of over $100 million — said the same about referred new business. What we found to be somewhat more interesting was the data from the 2008 IFA survey that showed “word of mouth referrals from existing clients” was highest at 31.9% followed by “other — e.g., CPA firm” at 28.8%.
Effectiveness of Referral Sources
In a drill-down to get closer to the effectiveness of referral sources, each respondent was asked to identify a source using “effectiveness” as a measure. The survey question, posed using a range from “very effective” to “not at all effective,” showed that a word of mouth referral from a current client was, by far, the most effective (50%) followed by brokers (28.5%), banks (24.9%) and other factors (13.2%).
On the flip side, venture capital, turnaround management and CPA firms were rated as “not at all effective” by 68.1%, 56.7% and 49.4%, respectively, by all factors. It should also be noted that size of respondent by GIF didn’t matter — the negative response was universal.
Revenues: 2010 Actual & 2011 Forecast
Each survey respondent was asked to provide revenue information in the context of performance in 2010 compared to 2009 and an outlook for 2011. Seventy-two percent of the participants reported increases in 2010 versus 2009 with almost 41% saying their year-over-year increase was more than 20%. Almost 19% reported a decline with 9.2% noting “no change.”
The collective forecast for 2011 was extremely positive with about 84% of the respondents forecasting increases for 2011 compared with only 6% saying “decrease” and 10.2% noted “no change.” Thirty-six percent of those anticipating a positive change in revenue said they expect the increase to be more than 20%.
About the Study
The International Factoring Association distributed its 2011 IFA Business Profile & Performance Survey to 1,725 factoring industry members (U.S.-based and international) in January 2011. To conduct the study, the IFA retained the services of Industry Insights, an independent research and consulting firm headquartered in Columbus, OH. The entire 2011 IFA Business Profile and Performance Survey can be purchased by visiting the IFA’s online store at www.factoring.org.