Confirming up despite COVID-19 in Spain


Carlos Dalmau from International Solutions Division of Banco Sabadell, discusses Spanish confirming and factoring results in 2020.  

The year 2020 has certainly been marked by COVID-19, whose impact has been very negative both at an economic and health level in Spain; especially in the first half of the year, where the measures taken to stop the transmission of the virus impacted the economy significantly.

This environment has clearly affected companies with a production return in different sectors of activity. Some of those companies had a serious and deep impact - such as tourism and commerce – and have not managed to overcome the problems incurred. Others are recovering quite quickly, as we have seen with the automotive industry. Or, for example, white label electrical appliances have also shown a rapid upward trend.

Therefore, still the speed of reactivation performs in different ways and it is conditioned mainly to the different mobility measures applied.

Under these premises and based on December 2020 data, we faced a disparate evolution of the two main products: factoring had a decrease of 7.67% and confirming a growth of 4.56%.

If we look at the two products individually, factoring has rapidly been impacted negatively by the fall in business turnover of the main sectors of activity that were precursors of the product, and mainly affected by the fall in turnover in Spain. National factoring has fallen by 8.33% so far this year and it is difficult to reactivate it since the Spanish domestic economy does not have a clear upward reaction, particularly on the main sectors of activity that are mostly used by national factoring.

Regarding international factoring, it has suffered the initial impact of the international mobility decrease as well as the shipments problems of goods in the beginning, falling 5.59%. However, as the year moves forward, we have observed a major acceleration of its reactivation.

As for confirming, it has clearly been the star of the year in terms of working capital products, serving as a financing support mainly for SMEs and supporting the possibility of extending financing issued by large Spanish companies.

If we compare the rest of working capital products, mainly commercial discount, we have also observed a drop in the product turnover, and the only one that has maintained positive growth has been the confirming which has remained one of the most widely accepted products/services in the current environment.

There is a key factor during this year, being the fact that both factoring and confirming have actively participated in the support lines introduced by state in order to help companies. In Spain, these lines are issued through ICO.

The above has made it possible to provide financing lines to companies, mostly SMES, supported and guaranteed by the State to enable them to continue with their commercial activities with a perspective of guaranteeing lines up to three years validity. This allows many companies to manage and reactivate sales, purchases and the ability to increase income on a sustained basis.

This point is very important, since those companies have been able to bear a significant turnover drop impact and it encourages them to join efficiently to the economic reactivation. It also offers the  possibility to operate through both national or international factoring and confirming.

Finally, another key aspect that helped in the initial phase of the crisis was the possibility of carrying out an organised financing extension, providing support and means to companies who were not able to balance collection payments with the purchases made. This action was essential to be able to withstand the initial blow of the system.

In Spain, there is some concern related to the factoring and confirming sectors, which is the proposed Insolvency Law. It foresees penalties for the non-fulfilment of the payments act law, setting the maximum term of 60 days. Although the approach is correct, what concerns the majority is the incorporation of sanctions to suppliers in case of non-compliance. In Spain, the base of SMEs is very high and perhaps it might not the best economic moment, in the middle of the COVID-19 crisis, to implement sanctions that will be difficult for those companies to withstand.

Another ongoing episode that affects factoring - most significantly impacting the non-recourse factoring - is the treatment of ‘new default’, which is about amortizations and non-payments after 30 days resulting with bill chaining. In Spain, usually a non-payment is endowed to 90 days, and what causes the treatment of a ‘new default’ is a sum of days from the first overdue invoice.

The topic is quite sensitive in Spain to which the potential risk of non-payment by companies can be added, however factoring and confirming products clearly allow an anticipated vision of business risk, especially because they impact the trading account of the companies, both for the client portfolio and the payment portfolio.

Institutions often act quickly as the first line of defence with these products, traditionally allowing a very low non-payment ratios overall with these products.

The environment is still complicated and the economic visibility of the country is still limited, which makes it difficult to discuss the evolution of the different products. The companies, in general, have been economically strengthened, financial resources have been increased, and the business lines are yet supported mainly by ICO, which allows to provide a certain guarantee of continuity. However, the important point will be the rapid economic reactivation of both the domestic and international market. Above all, the resilience of SMEs and freelancers in Spain, in the context of complicated economic rebound during the first 6 months of the year (and more favourably during the second half of the year, thanks to the vaccinations that are to be carried out across the country) will provide greater confidence and possibilities for a faster economic recovery than we currently observe.

Confirming will remain as a product line widely used by companies, as it perfectly fits with current needs and the accompanying support funding for SMEs and freelancers, so it is necessary to provide with them breathing space to handle their business reality.

Factoring will foreseeably have a positive year compared to 2020. The main driver will continue to be the national factoring however with moderate growth. International factoring will possibly have double-digit growth in line with the expected rebound of Spanish exports.