Factoring Data for 2022

I believe the most valuable data that is published annually in the PCOC is the comprehensive table (reproduced below) that documents typical discount fees (expressed as a %) on outstanding invoices for Notification factoring in the United States. The table has data on 8 different sized monthly volume categories, and presents data on a 1st quartile, median and 3rd quartile range for each of the 8 volume categories.

As can be seen below, median fees cover a wide gamut, ranging from 3% for the first 30 days for the smallest volume category to 1.1% for the largest ($10 million a month or more) category. Assuming factoring volume of between $250,000 and $1,000,000 a month by a SME client, median fees charged on a discount basis are 2% for the first 30 days and 2.6% for the next 30 days.

It is important to also keep in mind that many factoring firms in the United States also charge additional non-discount related fees, as documented in the PCOC and already mentioned in this article.?

Source: PCOC, Survey Results 2022.

And as we are aware, factoring is not a loan but a true sale and purchase transaction in which the SME sells their valid B2b and B2G AR to a factoring firm at an agreed to discount like the ones presented in the PCOC table above. As a result, there is never an “effective APR” that should be presented or represented to a SME Prospect or client. But if there were, an effective APR for a monthly relationship of $250,000 to $1,000,000 of AR factored by the SME for the factoring could be in the 24% to 30% annual range, plus additional non-interest structured fees.

In summary and conclusion, the annual PCOC is a valuable tool that should be used by the factoring industry in the United States to educate SMEs about the market cost of the professional services provided in the marketplace today. I also believe that the results of the 2023 PCOC are likely to confirm that the median fees charged by the industry to SMEs in the United States in Q3 and Q4 of 2022 may have increased significantly. This is due in large measure to the industry passing through to SME clients the series of aggressive rate hikes engineered by the Federal Reserve Bank in 2022 to quell rampant inflation in the United States.

It will also be interesting to see if the materially higher cost of PCOC factoring as a negative impact on the overall volume of factoring volume for the year ended December 31, 2022. Given the very unsettled and negative outlook for the economy held by many SME owners at the present time, it would not be a surprise if the total volume of factored AR dropped significantly for 2022 (when compared to 2021 levels) and even in the year 2023.?