Overview of the Factoring Industry
Like any other industry, the invoice factoring industry weathered some storms and enjoyed some victories in 2022. Before we jump into the new fiscal year, let us quickly revisit the state of the factoring industry during the past year.
According to research, in 2022, the value of the U.S. Factoring Services Market was $153.9B while the value of the global factoring services market was $3,566.99B. Its expansion is expected to have a compound annual growth rate (CAGR) of 9.2% from 2023 to 2030. The factoring industry provided the alternative for bank and other traditional financial services that imposes rigid requirements. This helped the industry gain the traction it needs. However, the industry took a hit in cybersecurity. Many businesses reported being targeted by malware and hacking attacks, resulting in significant financial and reputational damages. To address this, different cybersecurity companies are already devising a way to help factoring companies strengthen their security system. This should avert such mishaps in the future.
The Factoring industry entering 2023
As 2023 ushers in, industry leaders remain optimistic about how the factoring industry will fare. Though there is currently an economic slowdown, industry leaders see a silver lining in this predicament. While banks and other financial institutions will be more rigid in terms of credit requirements and interest rates, businesses will begin looking for alternative financiers, and this is where invoice factoring comes in.
Challenges and opportunities for the factoring industry
The factoring industry stands to experience some challenges this year. These include managing the increasing number of defaulting clients, as well as better handling of operating expenses, essentially a client’s borrowing cost of factoring companies. Moreover, interest rates will remain generally high across the year, affecting all businesses across all industries. This will present industry leaders who believe in turning challenges into opportunities: small-scale businesses will seek funding to support their general operations or plans for expansions. This then provides an opportunity for factoring companies to increase their portfolio, with a caution to be more prudent in client selection due to the increasing number of defaults brought about by unfavorable economic conditions. Businesses can take advantage of reducing credit risk when using invoice factoring, especially for non-recourse factoring.
Expectations for factoring in the new year
CapFlow understands that invoice factoring brings a lot of advantages to the table for businesses, especially for small-scale enterprises at that. The general expectation is positive for the factoring industry. It is envisioned that more businesses will turn to factoring companies as an alternative to banking institutions as it offers easier access to funds but with less stringent requirements and absolutely no impact on credit score. Moreover, the high-interest rates of banks generally push businesses to explore other options to secure funding for their ventures. There are lots of acquisition opportunities seen for the year as well, for risk-takers to seize the opportunity of acquiring other companies. Despite the challenges, these opportunities will make 2023 a great year for the factoring industry.