The Future of Factoring

The current Covid–19 situation has caused catastrophic damage, and businesses around the world have suffered. Countries worldwide have tried their way to support their economy by injecting money into the system in economic stimulus.

Where we stand right now.

The US has injected over $9 trillion* into the economy in direct payments to the consumers, low-interest loans to the SMEs, targeted bailout funds to hard-hit industries such as travel, leisure, hospitality, etc. Japan revised its initial conditional cash transfers program into a universal one to provide an additional $83 billion* in support to the households.

What the future holds.

As disruption has caused significant damage, there will arise a need for liquidity and risk mitigation. Peter Mulroy, Secretary General of FCI, had predicted that the combined open account trade volumes financed through traditional financing, reverse factoring, asset-based lending, and other forms of receivables finance accounts for well over the US $5 trillion* globally, which represents approximately 6% of the global GDP. He estimates that the factoring industry will achieve a volume of US $10 trillion by 2030, increasing by 7% CAGR*.

According to Mulroy, we can expect the commercial banks to go back to conservative banking system wherein they would draw the line on SMEs which would create a new window of opportunities for the factoring industry. Given the size of the SME industry, there is a huge potential for the factoring industry to grow.Businesses and global economies are gradually getting back to their feet but as an industry, it is now also important to look at other opportunities as well and in order to hit the US $10 trillion* mark, targeting SME will be of a greater importance.

*Source: Trade Finance Global IMF