11.10.2023

Finance Business Next

Factoring in vogue: the success story continues

11.10.2023  | Philipp Oberleitner

In recent years, factoring has steadily established itself on the financial market in Germany and is enjoying growing popularity. In view of the current volatile conditions, such as rising interest rates, inflation and an opaque political environment, we are concerned with the question of what the future holds for the factoring market.

 

The development of factoring over the last two decades

If we look at the development of factoring over the last 20 years, we see that- in terms of sales volume- the market has increased tenfold, with steady growth becoming apparent. This quickly becomes clear from the FCI chart:

 

Factoring record year 2022 and first half of 2023

The German factoring market recorded record growth of 20.5% to 372.9 billion euros in 2022. This was mainly due to banks' reluctance to lend, which meant that alternative financing options such as factoring gained in importance. Both national and international factoring grew strongly, with Eastern Europe, Benelux, Austria and the USA being important partner regions. The factoring ratio in Germany rose to 9.7 percent, but still lags significantly behind other European countries, indicating that there is still room for further positive development and growth.

The members of the German Factoring Association (DFV) recorded solid revenue growth of 5.7% in the first half of 2023 compared to the same period of the previous year, reaching a total of EUR 192.8 billion. The national factoring business increased by 12.6% to around 142 billion euros. Despite a rise in insolvencies, the number of factoring clients remained stable at around 106,000. In contrast, the international factoring business recorded a decline of 9.7 percent to around EUR 50.8 billion due to a fall in exports and orders from German companies. DFV members are somewhat more cautious about the future due to various challenges, reflecting energy price uncertainty, the shortage of skilled workers and increased investment costs. These figures represent the German factoring market, with DFV members covering around 98 percent of the factoring volume organized by the association in Germany.

 

Factoring future prospects

The study published by the Bundesverband Factoring für den Mittelstand (BFM) in January 2023 is informative when it comes to assessing future prospects. According to the study, factoring will gain in importance in Germany, particularly among SMEs.

Around 26% of industrial companies with sales of over EUR 2.5 million are considering factoring as part of their financing and 37% see it as protection against bad debt losses. Factoring offers companies the opportunity to sell outstanding receivables and obtain immediate liquidity. It is seen as crisis-proof and adaptable, which is why its use is constantly growing, especially among larger companies. The BFM plans to introduce factoring to more companies, as personal advice on financing issues remains important.

SMEs are increasingly looking for quick and uncomplicated financing options, with 18% of decision-makers in SMEs considering using factoring to increase their liquidity in the future, compared to 14% two years earlier, according to a study by the Bundesverband Factoring für den Mittelstand (BFM). Sectors such as import and export (78%), manufacturing (69%) and trade (58%) are particularly interested in the revenue-congruent principle of factoring, as it offers an efficient financing option for growing companies and at the same time provides non-recourse protection against payment defaults (56%).

Hardly any other form of financing can boast a similar success story as factoring. However, this does not mean that all factoring providers are benefiting equally from the boom. At the same time, requirements are increasing from all sides. The expectations of customers and legislators with regard to user-friendly online applications for credit lines and the digital submission of invoices represent a significant hurdle.

The best way to benefit from the sustained factoring boom is to rely on a powerful IT solution. Factoring providers can use our latest version of HENRI for Factoring to handle the entire factoring process with maximum efficiency - from the acceptance of factoring customers to payment transactions.

A detailed description of HENRI for Factoring can be found in our Fact Sheet.

 

Download the fact sheet "HENRI for Factoring - the strong solution for a strong market"

Philipp Oberleitner