• What Is Impacting The Factoring Industry

    An analysis of what is impacting the factoring industryI recently received a kind invitation to moderate the SME Insights panel at the Alternatives & Receivables Finance Forum in London. I noticed that one of the organisers recently posted a question on social media, "What is impacting the factoring industry?". So I have set out my views on this question, below.

    What Is Impacting The Factoring Industry?

    The first clarification is to confirm that "factoring" is being used as a term to describe invoice finance with the addition of a credit control service, rather than as a blanket term for receivables finance generally. I have assumed it is being used to describe the credit control version of receivable finance, but some of the trends mentioned affect the receivables funding sector generally.


    In recent years, technology has moved forward significantly and some of those progressions have affected the invoice finance sector, enabling the launch of numerous new providers, and innovative offerings. The first factor is the development of platform based technology that has enabled funders to offer invoice finance via the web. This has tended to enable movement towards invoice discounting, rather than factoring, but it has enabled the launch of numerous small invoice finance companies that have been able to rapidly launch their product offerings and compete for market share.

    One of these platform based offerings is from Marketinvoice. They have achieved both huge volumes of receivables discounted (currently in excess of £2Bn), and some degree of impact on the awareness of these products, through their extensive marketing and promotional activities which have included strategic partnerships with orgainsations such as the British Business Bank.

    The second technology related factor affecting the sector is the application of "blockchain" technology that is emerging as a result of the invention of crypto currencies. The blockchain element is used to record transactions underlying cryptocurrencies in a distributed digital ledger mechanism. This element is now being applied to a number of other industries (without the cryptocurrency aspect being used) to create smart contracts that can be used to regulate transactions. Receivables finance is one sector where this is happening, and there are a few blockchain based offerings that are at various stages of entering the market. Some appear to promise huge potential. See my previous posts about the impact that blockchain is having.

    Another element is the availability, and ability to analyse "big data". As large data sets regarding corporate behaviour are being more readily collected and able to be analysed, this information is beginning to be applied to the sector. It is early days but it has the potential to have a huge impact on aspects such as the avoidance of bad debts and the identification of customers with a propensity to borrow.

    The final element of technology, that I will highlight, is the growth of the Internet as a route to finding receivables funding in the first instance. Historically, most companies went to their bank and there was a secondary market that went via their accountant. The volume of business acquired via the Internet is increasing, giving rise to increased competition between providers and intermediaries, for visibility online.

    Economic Growth

    There is a close link between the use of invoice finance and fast growth. In our previous research we have found that whilst less than 1% of businesses generally use invoice funding, 52% of those growing at 20%+ each year use these services. This suggests that high business growth rates are closely linked to propensity to use invoice funding.

    The UK economic position is that currently it is enjoying modest growth by historical standards. Quarterly growth in GDP (Gross Domestic Product - the measure of output from the UK economy) of 0.4% was recorded for Q2 2018. 1.4% growth is predicted for 2018, with a rise to 1.8% next year. So growth, but only at modest levels. Within those overall averages, there will of course be businesses at either end of the growth spectrum. Those at the fast growth end may have that higher propensity to use services such as factoring.

    The recent rise in base rate, and the prospect of future base rate rises is likely to keep a lid on growth prospects, as is the current threat of economic uncertainty arising from Brexit.

    So in an environment of modest economic growth, one might continue to expect to see some growth in the demand for invoice finance services.


    There are two sources of competition affecting the invoice finance sector. The first is from new, innovative financial services that are competing for market share. This includes services such as crowdfunding and independent business loans. Both have become increasingly available from a growing number of new providers - and sectors such as crowdfunding have achieved greater levels of market awareness than receivables funding.

    The simplicity of these offerings often attracts customers. Recently, the UK has enjoyed a period of relative economic stability and relatively low numbers of business failures. This has created an environment where bad debts have been relatively low. The true value of lending against receivables only becomes fully apparent when you experience high levels of bad debts within a difficult economy. In such conditions other forms of lending, that are not so robustly secured, can struggle to recover their funds if customers fail. The lack of such testing economic conditions has allowed some competitors to enjoy the benefits of a being able to take a more flexible approach to lending.

    The second aspect of competition is within the sector itself. New product offerings, such as selective invoice finance, have emerged to compete with the traditional model of factoring the entire turnover of a business.

    In a market where client numbers (as per the UK Finance statistics) appear relatively flat, individual invoice finance companies are competing for new customers by offering lower fees and more flexible risk decisions to attract prospects. The quest for new clients has lead several new entrants to the construction funding segment of the market, which has increasingly become a feature of receivables financing in recent years as providers diversify to find new market segments.

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