Companies in more than 70 countries and representing dozens of industries have relied on invoice factoring services for years. Factoring can improve cash flow, make the receivables process more efficient, and allow a company to expand its product and service offerings with less risk than would be the case with conventional lending sources.
But another period of dramatic growth may be in store for the factoring business, potentially benefiting all participants in the industry and providing a much needed shot of liquidity to industries and regions where it’s needed most.
Europe and the Frustration with Banks
Although business trends from Europe don’t always cross over to the U.S., and vice versa, it’s worth taking note of the prevailing patterns.
According to research conducted by Demica Ltd., a London based consulting and advisory firm that specializes in recommending alternative sources of capital, invoice factoring is becoming a more popular source of funding as credit remains tight across Europe. The lending environment – along with frustration with banks regarding fees, collateral requirements, NSF check policies, etc. – has many business owners seeking non-traditional sources of funding, with more than 30% saying they are likely to seek credit from non-bank entities sometime in the next year.
The Demica report states that invoice factoring is becoming a popular option, as business owners discover that unlike other commercial lending options, factoring does not require physical collateral and, when structured properly, can increase capital at a responsible rate, almost in lock-step with a business’s revenue growth. This makes factoring an attractive option for business owners not wanting to put their personal assets at risk.
The numbers appear to validate Demica’s claims. Data show that the total European invoice finance market was estimated to be about 1.1 trillion Euros in 2011, compared to 991 billion Euros in 2010 and 844 billion Euros in 2009 – an annual growth rate of over 10%, and representing more than 8% of total corporate lending throughout Europe.
The Italian Surge
In particular, businesses in Italy are gravitating to factoring services, as payment delays become more and more common in the struggling economy there.
Typical payment times in Italy are notoriously slow, with even the Italian government currently behind an estimated 100 billion Euros on payments to suppliers, vendors and service providers. In addition, the country’s largest companies were generally considered to be among the slowest payers in all of Europe. That was before the onset of recent financial problems that are impacting the region, and the situation is not showing signs of stabilizing.
As a result, many companies are implementing factoring programs in Italy, where most businesses can’t wait the 180 days it takes on average, according to Dow Jones, to be paid on a public-sector invoice. The situation with health care organizations is even worse. Average time of payment by health authorities in Italy increased to a whopping 262 days in 2011, according to Prometia, an economic research institute based in Rome.
Getting Started with Factoring
While general economic conditions and credit standards in the U.S. have not deteriorated to the extent of those in Europe, the benefits of invoice factoring – more timely access to funds, simplification of customer credit verification, the freeing-up of time for more productive activities – are still applicable to companies here.
Getting started in factoring with MP Star Financial is easy. Some preliminary paperwork needs to be completed, credit checks might be performed on some of your customers, and then invoices are submitted for fast payment. Most of the preparation can be put in motion after a preliminary, no-cost consultation over the phone. Call for more information.
MP Star Financial’s invoice factoring services can make your company’s cash flow more predictable, allowing you time to run your business and grow your company. We are here to help. Call MP Star Financial today for more information at (800) 833-3765, extension 150.