The World Factoring Industry is now a $3 Trillion Business!
I just returned from the largest International Conference for Factoring firms held in Warsaw, Poland March 31 to April 2. I made presentations on 2 of the 3 days of this important Industry event on how to more effectively market factoring and specialized financial services in a very difficult global economic environment. This International Event attracted key sponsors including: Codix, HPD Software, Squire Sanders, Efcom, FIDIS, DEMICA, Neurosoft, Financial Company Politeks, Smart Factor, Premium Technology and ING. Association and Media Partners included FCI, European Bank for Reconstruction and Development, International Chamber of Commerce, IFG, IB Contacts, Supply Chain Brain, Poliski Zwiazek Faktorow and TRF News.
Attendees were senior management teams from business finance companies, accounts receivable factoring companies, banks, and asset based financiers as well as corporate executives. Receivables finance and supply chain experts from 30 countries including Estonia, Egypt, Spain, The United Kingdom, Ghana, Poland, France, Malta, Italy, The Netherlands, Germany, The United States, Turkey, Denmark, Switzerland, Russia, Finland, Austria, Iceland, Australia, Norway, Sweden, Croatia, Greece, Slovenia, Belgium, Romania, Belarus and New Zeeland attended and or spoke at the Convention. With regards to my own experience, I have had the opportunity to speak at several other BCR and International Conferences in the past in San Francisco, Hong Kong, Madrid, Shanghai, Kuala Lumpur, Malaysia, Vienna, Amsterdam, Rome, Tianjin, China, Turkey, Poland, Brussels, Paris and London over the past several years.
The opening presentation in Warsaw has traditionally been when statistics on the growth and scope of the International Factoring Industry for the past 12 months are revealed. This was the case again this year, and data compiled by Factors Chain International [the largest factoring trade Association in the world] were stunning in many respects. Why?
Before I recap the statistics presented in Warsaw, let me first quickly comment on Factors Chain International “FCI”. Their website is www.fci.nl Factors Chain International is a global network of leading factoring companies, whose common aim is to facilitate international trade through factoring and related financial services. Currently the FCI network counts 273 factors in 75 countries, actively engaged in more than 80% of the world’s cross-border factoring volume.
So let’s look at the data hot off the Press about Factoring globally. I will summarize the key take away‘s from the slew of data that can be analyzed in the FCI statistics.
- For the first time ever since factoring data has been compiled, the global factoring industry exceeded $3 Trillion [no typo] in worldwide volume in a single year. For the year ended December 31, 2013, total global factoring volume was $3 Trillion or an increase of about 10% over comparable 2012 data. It is important to keep in mind that this record performance occurred in spite of what was arguably the weakest “recovery” of the global economy in recent memory.
- The strong global performance in our industry is even more impressive when you consider that many if not all of the other providers of capital [traditional banks, etc.] fared nowhere near as strong a performance as di the factoring industry overall.
- If once analyzes the factoring volume data over a longer period of just 5 years [coinciding with the onset of the global financial crisis], the results are even more impressive. Global factoring volume [using the EUR data] has actually doubled in the 5 year period from 2009 to 2013. The increase of 1 Trillion EUR represents about a 15% CAGR, or compound annual growth rate over the period.
It is very important to look in greater detail to see where this level of unprecedented growth in the factoring industry globally is occurring. And the answer to this question is quite simple: International factoring.
As noted in the Press Release issued by the FCI on April 8, 2014, “International factoring delivered a five-year compound annual growth rate (CAGR) of 24.8 per cent. This is far above the 13.1 per cent CAGR for domestic factoring, meaning that international cross border factoring volume increased nearly two times faster compared to domestic growth. The increase in cross border factoring has again been driven by an rise in open account trade, especially from suppliers in the developing world, pushed by the major retailers/importers in the developed world, including the acceptance of factoring as a suitable alternative to traditional forms of trade finance. China has played the most important role in this impressive international growth story over the past five years, increasing at a rate of 54% per annum, and becoming the largest factoring market in the world today.”
The mind boggling key statistic of the FCI Press Release is the fact that factoring in China has grown at a 54% CAGR or compound annual growth rate over the past 5 years.
Even though China now is the largest factoring market in the world, as a region Europe remains the largest factoring market on the globe. Europe accounts for a little over 60% of the total $ factoring volume in the world as of the end of 2013. Of the $3 Trillion total global factoring volume, Europe’s total was about $1.9 Trillion. While impressive, it is a sign of the times that Europe’s market share as a percentage of total factoring volume has shrunk dramatically in the period 2007 to 2013. In 2007, Europe accounted for about 72% of total global volume; as of December 31, 2013 this is now only 60%.
What Europe has lost, Asia has gained in overall volume market share in the period 2007 to 2013. In 2007, Asia recorded 13% of total $ factoring volume, and as of 2013 its’ market share more than doubled to 27%. It should be no surprise that China represents over 60% of Asia’s total volume, followed by Japan and then Taiwan.
The America’s remain a distant third, well behind both Europe and Asia in factoring volume. Global market share for the America’s is only 8% as of the end of 2013, down from 11%+ as recently as 2007.
Given the above data, it makes sense that most of the largest increases in factoring volume have recently occurred in Asia. Some of the individual countries with double digit growth [using $ data] in 2013 include the following:
- China, 15%
- Hong Kong, 15%
- Korea, 61%
- Singapore 20%
Other countries outside Asia that recorded impressive growth included:
- Austria 34%
- Croatia 45%
- Poland 34%
- Russia 24%
- Colombia 62%
- India 50%
- Australia 32%
So what does all of this data mean? What can we conclude about the impact that our industry has on world trade, commerce and funding?
My conclusion is that in most parts of the world with the exception of the United States, factoring is a universally accepted tool that is vital to the financial needs of small and medium sized businesses. It also has the support of governmental offices and central banks throughout the world, with the exception of countries like the United States.
There is no question that factoring is a thriving, global force that facilitates commerce. In the United States as is the case globally, almost any business or industry can profit by having a professional factoring firm as a partner. More and more businesses in the United States could profit [as others have globally] by utilizing the professional services of a factoring firm to grow and expand without the shackles common in more traditional funding alternatives.