The Survival of Factoring in Times of Uncertainty

Factoring has enriched the financial scene by providing additional financing solutions for small businesses. However, since the COVID-19 pandemic has significantly affected the entire financial market, the future of this financing model started going south at some point.

Despite its broad range of benefits, factoring faced difficulties when COVID hit. The uncertain times caused by the pandemic have affected various spheres of people’s corporate lives, resulting in reduced business operations, unexpectedly higher costs, and the inability to carry out already planned business projects. And that was inconvenient for small businesses relying on factoring.

The financial scene has never been entirely steady, but the pandemic shook it additionally. The fear of uncertainty made investors give up their projects or postpone their plans for better times. It created a vicious circle in the financial market, leading to a crisis that affected a broad range of businesses worldwide.

But despite all the problems and inconveniences, factoring managed to survive.

And it is predicted that it will have a bright future.

Factoring in Times of COVID

It is believed that the idea behind factoring dates back to Mesopotamia, where it developed alongside business itself. That said, factoring had had an important role even in ancient times when rulers needed a quick and efficient solution for their financial matters.

As a concept, factoring has significantly evolved throughout history, resulting in what we have today – a powerful tool for obtaining quick funds. Factoring is the way of receiving financing through a non-banking entity. It involves selling a company’s receivables to a third party, usually with a discount, to foster cash flow and obtain faster financing. But since it is based on selling the company’s invoices in exchange for cash, factoring is not considered a loan.

Unlike traditional banking, factoring involves three parties – invoice provider (seller), factoring platform (factor), and customer (buyer).

A broad range of benefits is the reason why invoice factoring soon became one of the most suitable financing methods for supporting and fostering small and midsize business growth.?

But the recent events in the economic world have not been favorable even for factoring. Alongside the world crisis and questionable economics, the COVID-19 pandemic has significantly affected the invoice factoring model, and no one could predict whether the factoring market would recover and when it would happen.

Low GDP and profit loss were not good news. All the hints were pessimistic and the future of factoring was on the line for some time.

But good things are capable of surviving even in the harshest conditions, and that is exactly what happened with factoring in Europe.

The EU Federation for Factoring and Commercial Finance (EUF) has recently released a statistics report that indicates a significant recovery of factoring compared to COVID-driven circumstances that arose in the previous years. Namely, the factoring market achieved a turnover growth of +12% and reached €2.0 trillion compared to 2020, when its total volume was €1.8 trillion.

This data proves the fact that alternative financing models like factoring are becoming more prevalent even in times like this. Businesses that need viable funding do not rely on traditional banking anymore, making factoring and crowdlending the number one choices when it comes to getting loans in a quicker and more efficient way.

Factoring in 2022: A Glorious Return to the Financial Scene

After dark times, factoring returned to the financial scene as a winner. Multiple factors stand behind its glorious recovery, including inflation, higher costs of shipping, energy, and raw materials, as well as the fact that factoring is becoming a favored financing method for small and midsize businesses looking for consistent cash flow.

The emerging need for technology and innovation in the financial market has contributed to the creation of financial platforms for factoring and crowd-financing. Digital software for factoring opens the door to many fruitful opportunities for both SMEs and investors seeking efficient methods for their business ventures.?

If you are interested in starting your own factoring business or you want to take your current business operations to new heights, visit the ZWEBB Fintech website or contact us via email to schedule a demo. We equip you with cutting-edge platforms for invoice factoring and trading, letting you stay up to date with the fast-paced financial world – without intermediaries or time waste.