Secured Finance Network publishes mid-year factoring survey

Overall healthy factoring demand, while less than anticipated due to weaker spending in key client sectors, suggests that the factoring industry is agile, resilient and open to new business. In line with that, the Secured Finance Network (SFNet) Mid-Year Factoring Survey reports that combined factoring sentiment rose to 68.8 in the first half of 2024, up from 64.8 at the end of 2023.

Although factors’ expectations for portfolio performance and U.S. business conditions were basically flat, they were improved for employee headcount (+12.5, to 62.5) and new business demand (+6.4, to 79.2). The prevailing industry mood comes against the backdrop of the bulk of economic indicators pointing to a “soft landing” for the economy. Specifically, despite declines in job growth and new orders and a contraction in manufacturing, inflation is falling close to pre-pandemic levels. While the Federal Reserve’s preferred inflation standard was up by a 1.8 per cent annualized rate over the last three months, the Fed recently cut interest rates by 50 basis points, unemployment fell while core retail sales rose in August, and unemployment benefits have been subdued all year.

Factoring is a form of financing where a non-bank lender or bank affiliate − known as a “factor” − purchases the accounts receivable of a client, at a discount. Clients typically are companies involved in textiles, apparel, business services, shipping, transportation and other industries that want to improve cash flow, according to SFNet.

Total volume and client numbers decline

Overall factoring volume dropped 1.9 per cent among respondents reporting volumes in both H1 2023 and H1 2024. As was true for respondents in the second halves of 2022 and 2023, the falloff was greater for international (8.7 per cent) than for U.S. (1.6 per cent) volume. Volume shares per industry remained the same from H2 2023 to H1 2024, with apparel/textiles at the top, accounting for roughly half of all volume (50.3 per cent), and another third split among the automative, business services/staffing, transportation/trucking and electronics industries.

Factoring client totals also were down, by 7.7 per cent, from H12023 to H1 2024, as there were 11.1 per cent fewer U.S. clients but 13.1 per cent more international clients. Even though banks and brokers remain the top referral sources, at almost 45 per cent combined, their share of referrals fell during the past year.

Regional distributions of factoring volume and clients were mostly unchanged throughout last year, but volume and client distribution differed significantly: the Northeast had the highest volume share in H1 2024 (56 per cent), while the Southeast had the highest clients share (26 per cent).

“Non-recourse factoring continued to comprise the bulk of total volume (85.8 per cent) but full recourse factoring still comprises the majority of clients (78.6 per cent),” stated the report. “Non-notification factoring accounted for 56 per cent of all volume in H1 2024, with its share of volume increasing steadily since H2 2022. Notification factoring’s share of clients has held steady in recent years, hovering around 96 per cent.”

Other Key Data

Total funds in use grew by 5.0 per cent among respondents reporting in H2 2023 and H1 2024, even though 75 per cent of them reported a decline in their funds in use during that period. This suggests a wide variance in demand from factor to factor, despite most factors experiencing a decline. At the same time, average earning assets were off by 0.8 per cent.
Average return on assets increased to 5.30 per cent, while average return on equity decreased to 6.21 per cent.
Where portfolio performance is concerned, write-offs as a share of volume were 0.10 per cent in H1 2024, while provisions/allowances for loan loss as a share of volume grew to 0.37 per cent. Factors observe that portfolio performance metrics are stable and healthy by historical standards.
Factoring revenues fell by 6.4 per cent from H2 2023 to H1 2024, while direct expenses were down by 3.1 per cent over the same period. Since the revenue shrinkage was more than the expenses falloff, the pre-tax income share of volume slid from 0.42 in H1 2023 to 0.30 per cent in H1 2024.
The number of factoring employees decreased by 5.3 per cent from H2 2023 to H1 2024. That period saw account management and business development headcounts become smaller, but the underwriting headcount got bigger.

About Secured Finance Network
Founded in 1944, the Secured Finance Network (formerly Commercial Finance Association) is an international trade association connecting the interests of companies and professionals who deliver and enable secured financing to businesses. With more than 1,000 member organisations throughout the US, Europe, Canada and around the world, SFNet brings together the people, data, knowledge, tools, and insights that put capital to work.