Factoring Provides Stability in Unstable Times

In times of uncertain financial liquidity, factoring becomes its bedrock.

2022 is another year that shows factoring is a crisis-resistant industry. We haven't yet shaken off the pandemic, and already there are more difficulties, that not only the factoring industry has to deal with, but the whole world. Of course, we’re talking about inflation, rising prices of goods and services, broken supply chains, rising energy prices, and Russia's attack on Ukraine.

The perception of factoring services by entrepreneurs is changing

While worldwide increase in factoring turnover oscillates around "only" 13–14% on average, in Poland this result is much higher, exceeding 20%. Growing awareness among end customers, greater flexibility of factors, faster processes for granting limits (more and more often online) and the possibility of the assumption of risk of contractor insolvency show that factoring will be the preferred form of financing not only among financial institutions, but also among end customers, i.e. entrepreneurs.

Increasingly more factors resign from the complicated and time-consuming process of granting a factoring limit, which often deters entrepreneurs. The possibility of signing the contract, adding a contractor or changing the terms of the contract without leaving home made the factoring product end customer friendly.

We must not forget about new technology or approach to User Experience. A modern, intuitive system that does not force the end customer to look at the user manual has become not only a nice addition, but also a necessity.

Changes in the market force changes in the providers’ approach to the offered systems

In other words: the implementation of the factoring system should not end only with the implementation of technological assumptions or data migration to the new system. It became necessary to go beyond the existing framework of services. Software providers more often carry out activities for their clients to support product implementations in the field of factoring. These include training for the new system users, education of end customers of banks, factors and other financial institutions in the use of the new tool, as well as broadly understood marketing support. In addition, training courses introducing the world of IT to employees of financial institutions, e.g. in the subject of artificial intelligence, are becoming more popular.

The end customer is not the only user of the factoring system

Software providers should not forget about the second group of end users, i.e. back-office employees.

One should focus here on how to improve the work of factor employees, working in the factoring system on a daily basis. From this perspective, it seems crucial to automate the work environment and daily processes as much as possible, e.g.:

• generating contracts, parameterizing contracts or entering contracts into the system;
• matching payments – using appropriate algorithms, achieving the level of 85–90% is realistic here, which will greatly facilitate the work of factoring operations teams;
• streamlining the work of the risk team – after the end customer submits a contractor to the contract, the risk should receive data processed and checked by all available databases, additionally the report should be supported by information gathered from artificial intelligence (AI), e.g. whether the given contractor will not go bankrupt in 9 months.

All these improvements lead to one thing – freeing the time of the factor's employees, so that it can be spent on other activities, e.g. strengthening relations with the client. To quote Jack Welch: “Communicate daily with your customer. If they are talking to you, they can’t be talking to your competitor." Taking care of the client is the key to keeping them with you.

What awaits us in 2023 and beyond?

It can be safely assumed that the industry should maintain the positive growth rate of factoring turnover. The positive growth trend of factoring customers should also be maintained and the share of non-recourse factoring (with assumption of the contractor's insolvency) should increase.

In the course of further digitization of factoring services, more factors will offer the possibility of signing an agreement online, and automating processes. Credit risk will certainly be a challenge – here caution and close attention will have to be maintained at the highest level, because where there is an opportunity, there is also a threat.

In my opinion, within 3–5 years, factoring will not only be the most important product among entrepreneurs, but also for financial institutions. Of course, flexibility or better risk diversification are only some of the advantages of factoring. In the future, when ensuring and maintaining liquidity will be even more important, no product will work better than factoring.

Author: Karol Leszczyński, Product Development Manager at Comarch Factoring Platform