Factoring Industry Shows Resilience Despite Decreased Volume, SFNet Survey Says

The factoring sector began 2023 on a positive note and has continued to show resilience in an uncertain economy, according to the MidYear Factoring Industry Survey, released by the Secured Finance Network (SFNet). The survey included the Factoring Confidence Index, which found that despite a lingering threat of recession, member organizations are optimistic about the demand for new business and portfolio performance. General business conditions and industry employment levels, meanwhile, were predicted to remain the same.

Factoring is the process by which a buyer—a non-bank lender or bank affiliate referred to as a “factor”—purchases the accounts receivable of a client, at a discount. Clients are typically companies involved in textiles, apparel, business services, shipping, transportation and other industries that want to improve cash flow, according to SFNet.

Factoring Activity

This industry, like many others, continues to feel the pressures of a post-pandemic economy. Overall factoring volume in the first half of this year decreased by 13.5% compared to the same period in 2022, the report said. U.S. volume was down 13.3% and international volume fell by 23.7%. Apparel/textiles remained the top client industry for volume at 30.2% after holding a similar position in SFNet surveys in recent years.

Regionally, there was little change year-over-year in factoring volume and clients, the report said, but the distribution of volume was notably different from the distribution of clients. The Northeast had the highest share of volume in the first half of this year (58%), but the Southeast had the highest share of clients (27%).

More factoring survey highlights:

• Average loan turnover saw a slight increase to 47.8 days in the first half of 2023 and average days sales outstanding also rose, to 50.7.

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• For portfolios, write-offs were up slightly from the same period in 2022 as a share of volume, from 0.04% to 0.11%. Provisions for loan loss accounted for 0.44% of volume.

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• Factoring revenues decreased by 26% from midyear 2022, with net interest revenue holding steady at 58%. The share of service fees, meanwhile, saw a slight increase.

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• Average return on assets rose 4.2% while average return on equity increased 15.2%, the report said. Survey respondents reported pre-tax income at 0.63% of volume in the first half of this year.

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• The number of employees in factoring grew from the previous two quarters, but not by much: 1.2%.

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Read the full report here.