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- The trade, factoring, and receivables industry has proven its resilience this year.
- TFG spoke to Federico Avellán Borgmeyer, Chief Partner Officer at efcom, at the FCI Conference in Prague to learn more about this year’s developments and what’s in store for 2025.
The Mesopotamians were factoring in 1700 BC. But they didn’t have to contend with changing regulation, increased cybercrime, and geopolitical challenges – all which have made the recent period a particularly turbulent one for the industry. However, new technology and untapped markets in emerging economies provide exciting opportunities for growth.
Resilient but stagnant
Trade, factoring, and receivables have proven themselves resilient industries, growing by 3.1% in 2023 despite macroeconomic and political challenges that threw many other industries off course. Despite relatively slow growth, factoring is attractive to investors due to its countercyclical nature: in times of crisis, organisations want to secure their cash flow positions, and receivables are a safe way to do that. “We’re in an industry that actually grows when there is trouble happening around – organisations feel safer in moving into receivables finance during that time,” said Borgmeyer.
However, there are signs of a slowdown: the German factoring market, which has seen years of constant growth and reached almost €400 billion in size, is forecasted to stop growing in 2024 for the first time ever. This might be a sign of a mature market, although Germany’s 9% factoring ratio sits well below its neighbours’ (21% in Belgium, 16% in France). Germany’s lacklustre GDP growth, the lowest in the EU at a forecasted 0.1% in 2024, could be another reason for the decline.
This continues a pattern of modest growth in the factoring industry in the EU as a whole, with especially Western Europe experiencing low or negative growth in the last few years. Developing economies might be the ticket to more impressive numbers: factoring companies are eyeing Africa, India, and the Middle East, whose small- and medium-sized enterprises (SMEs) are in dire need of financing lifelines, as opportunities for expansion.
Untapped emerging markets can benefit most from new technologies in the factoring and receivables sector, especially digital solutions that expand access to financing. These markets can be important drivers of growth when the European market is stagnant.
Digitisation for growth
The single biggest enabler of growth in the factoring and receivables business in the next few years will be digitisation, which will make producing the documents necessary for trade much easier and faster. Even though the underlying document is basically the same, moving from paper to digital trade documents will enable larger volumes of documents to be moved around the world at unprecedented speeds, representing the biggest change in the factoring industry since the shift from stone tablets to paper thousands of years ago.
While the technology is there, and some countries have been proactive in passing legislation that promotes the use of digital trade documents, as the UK did with the Electronic Trade Documents Act (ETDA) in 2023, adoption has often been sluggish. As more countries adopt legal standards for electronic documents and more firms start using them, the factoring industry could see widespread growth and increased efficiency in the next few years.
Challenges ahead
While legislation can enable growth, like ETDA, there are fears it can also stifle it—as upcoming regulation on new technologies might. “AI regulation will most likely prevent the development of tools that are relevant and important to manage millions of receivables that are out there, to reduce risk and fraud,” said Borgmeyer.
New regulation proposed by the EU intended to address the problem of late invoice payments would mandate payments within 30 days without any exceptions. If passed, this would significantly reduce the European market for trade and receivables financing. The EU has also been worrying the industry by imposing heavy tariffs on electric cars from China, sparking fears of a trade war that would further stifle the market; the upcoming US election and the Republican plan of increasing tariffs on many foreign goods have made the landscape even more uncertain.
Some risks, on the other hand, are more theoretical than real for now, like cybercrime. Digital trade documents are seen as more vulnerable to cloning or manipulation than paper documents, leading many in the industry to cite cyber security as the biggest risk in the coming year.
However, for now, this has not been a significant concern, said Borgmeyer: “Cybercrime is something that we have been registering, not because of attacks on our systems or on the systems of our clients, but rather because of the requirements that are being placed to us. It’s not that we’re seeing it happening, but we’re seeing that people are becoming more and more concerned.”
Cybercrime is bound to rise as the trade and factoring industry becomes more and more digital – but firms are prepared. A joint initiative by efcom and other tech firms in the industry being launched in 2025 will focus on fighting back against fraud and preventing cybersecurity risks to promote digital expansion without compromising security.
The factoring and receivables industry is looking strong despite regulatory, macroeconomic, and political challenges. New technologies and emerging economies are important opportunities for growth, especially as companies work together to mitigate the risks involved.
The factoring and receivables industry is looking strong despite regulatory, macroeconomic, and political challenges. New technologies and emerging economies are important opportunities for growth, especially as companies work together to mitigate the risks involved.
