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Keywords: factoring, procure to pay, purchase to pay, P2P, Factors Chain International, FCI
Matthew Garrow-Fisher | News | 17 April 2012
More businesses from around the world are realising the advantages to be gained from a factoring arrangement, with volumes recorded by Factors Chain International (FCI) showing a sharp increase in the industry.
Total worldwide volume for factoring increased by 22% in 2011 compared to the previous year, illustrating its resilience during the global financial crisis.
Indeed, today the total volume is worth around €2tn (£1.6tn), marking a record year for the industry.
Factoring is often used to fill the gap in the purchase-to-pay process between the raising of an invoice and the receipt of payment, providing a welcome injection of cash.
FCI noted that while factoring volumes dropped in 2009 at the height of the economic downturn, figures in 2010 surpassed those of 2008, which was another record year for the industry.
Through factoring, importers from around the world have benefitted from buying on open account terms without any requirement to open letters of credit or accept other restrictive payment conditions.
Exporters, meanwhile, can benefit from working capital, credit risk protection and collection services through a factoring arrangement.
In the coming year, the factoring industry is well-positioned to play a more central role in providing working capital and risk management services to an increasing number of businesses around the world.
Jeroen Kohnstamm, secretary general of the FCI, stressed that factors do not replace the services offered by banks, however. He explained that more banks are developing a factoring capability.
"Through factoring, against the purchase of invoices, the funding is far more secure than in cases where other forms of collateral are used to provide security for traditional bank lending," he added.
"As a result, the factoring industry is more and more an extension of the banking industry, but with ample space for independently owned factoring companies."
FCI observed from its report that Chinese and Russian businesses were realising the advantages of the service more than any other nation, with significant annual growth of 77% and 74% respectively.
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