News and Events

PZF Congress: Factoring thrives in Europe

08/09/2011

Given the well-documented problems prevalent in the Eurozone at present, it’s easy to think that the entirety of the European Union is in a state of standstill and trouble. And whilst many countries are indeed caught up in the mire, others have in fact achieved huge success in recent years and continue to do so today.

September’s PZF International Congress on Factoring brought together many of the factoring heads from across the world to discuss the current state of the international factoring arena. Despite all of these challenges however, there was an overriding sense of optimism amongst delegates.

This was in part due to the fact the asset based finance industry historically thrives during times of upturn as well as junctures of economic instability, given that traditional bank lending becomes difficult to access for SMEs as the banks tighten their criteria, and SMEs require more flexible cash flow solutions that suit their everyday requirements.

This optimism was particularly evident in Poland, where GDP growth has been maintained throughout even the darkest days of the global financial crisis and factoring has become a more widely used funding facility amongst local businesses.

For instance, it was reported that both client numbers and client turnover rose significantly in the Polish factoring industry over the past year as SMEs have discovered its benefits – resulting in the factoring industry now accounting for 4.6% of Polish GDP, which is close to the European average.

Given this success, there is clearly great potential for further growth and market penetration; however delegates discussed the biggest challenges to driving their market forward.

The first is that, in Poland, factoring is primarily associated with bad debts due to the sales ledger management side of the product. It is therefore important to educate Polish businesses as to its extensive benefits across all aspects of the facility, in particular its proficiency in times of rapid growth, providing a facility that supports growth and tracks turnover.

A second challenge is that there is a great deal of emphasis on cost over service – similar to pre-recession times in the UK – with many funders getting involved in pricing wars in order to win business but ultimately having the adverse impact of driving the overall costs down, which ultimately impacts service levels. One delegate even admitted he didn’t know how to sell factoring to a prospect other than by stating its low cost. Instead, it was argued that it is time to sell in service instead of price, because fundamentally the benefit is having an increased access to working capital in order to meet day-to-day obligations which frees up time and enables businesses to move forward.

The third is that the funders largely focus on larger businesses due to the smaller firms posing more of a threat as there is a potential for SMEs, even those with an excellent credit rating, to quickly become insolvent if they take a particularly large bad debt. Therefore, a need for more consideration on structuring viable frameworks and a variety of solutions is evident. The market is largely centred around factoring and service-only collections. The way the legal systems are doesn’t easily lend itself to varying structures/ facilities, such as confidential, but there appears to be a clear space /need for product diversification.

What is clear, therefore, is that there is massive potential for factoring to continue thriving across Poland, and indeed the rest of Europe. As the world becomes increasingly globalised and international trade becomes utilised by even more firms – and products continue to be adapted to reflect this – the possibilities are endless.

Education remains imperative to ensuring this happens, keeping business owners aware that there are viable alternatives to bank overdrafts and bank loans that actually significantly outweigh the more traditional funding facilities in terms of the benefits they drive to businesses of all sizes, both in the short and long term.