Canadian factoring activity down in 2020 due to pandemic


In 2020, the economic turmoil caused by the global pandemic led to a significant downturn in the Canadian economy, explains Jim Bates, President of Accord Financial Ltd. For the first time in many years most Canadian factoring companies declined to disclose factoring statistics, and so we can only provide a general perspective here. The Canadian factoring industry had experienced small increases in volumes in recent years, then a decrease of 8.74 per cent in 2019, with total annual volume of CAD 8.14bn. We estimate total volume to have decreased again in 2020, most likely in the range of 10.00 per cent to approximately CAD 7.30bn. International business continues to account for approximately 35 per cent of total industry turnover; most of this volume represents exports to the United States (US) and overseas. Invoice discounting and reverse factoring continue to represent only a small share of overall volumes.

 

Source for GDP: Trading economics

Factoring Industry Environment

The global economy ended its long period of expansion since the financial crisis in 2008 with the onset of the COVID-19 pandemic in March 2020. The Canadian economy ground to a halt in the second quarter, as the government enacted business closures and travel restrictions in its attempt to slow the spread of the virus. After a slow start to 2020, inflation-adjusted GDP plunged 11.3 per cent in the second quarter, before beginning the long road to recovery in the second half of the year. The Canadian economy finished the year with GDP down 5.4 per cent versus 2019, making it the weakest annual performance in more than sixty years.

The Canadian government and the central Bank of Canada took aggressive measures to support the economy through the downturn. Government programs were enacted to subsidise commercial rent and employee wages for businesses suffering steep declines in revenue and profit. The Bank of Canada also took emergency measures, quickly lowering its benchmark interest rate from 1.75 per cent at the beginning of March to 0.25 per cent by the end of March, its lowest level since emerging from the 2008-2009 global financial crisis. Given the economic disruption in both Canada and the U.S. - and the similar government responses implemented on both sides of the border - the Canadian dollar was stable versus the U.S. dollar throughout the year. 

Throughout 2020, Canada’s major industries navigated an economic climate of extreme volatility. Prices of natural resources like oil and gas collapsed early in the pandemic before recovering and stabilising by mid-summer. Lumber prices surged, supported by a boom in home building and renovations. Travel, hospitality, and retail were crushed by the pandemic, a disaster that will take years to recover from. The financial services sector, another key contributor to the economy, fared surprisingly well through the period, owing to its conservative stance and government regulations. Most individual Canadians found ways to balance their household budgets; with generous government benefits and few opportunities to spend, the savings rate increased dramatically, which will provide a boost to the economy once the pandemic subsides.

For many years, the Canadian factoring industry has been dominated by non-bank companies. In fact, National Bank of Canada continues to be the only bank that provides factoring services. Among the non-bank firms, Accord Financial has the highest market share, generally around 10.0 per cent. With a fragmented industry, and limited bank participation, factoring remains a niche solution in Canada. And without economies of scale, traditional bank credit services remain significantly more price competitive than factoring.

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