Factoring organizations are beginning to see signs of improvement in their clients in transportation, retail supply chain, automotive and government businesses. Many factors report an increased volume from their existing clients and flood of calls from new leads. Factors are also getting a shot at a much better prospect pool that they have seen before. With commercial banks remaining tight-fisted, the factors benefit from the influx of clients with good credit quality. Factors are currently closing the deals based on the ability to have a quick closing and by being able to offer as much availability as possible.
However, getting acquainted with the factoring community can sometimes be a rude awakening for businesses not accustomed to the terms. The companies, previously serviced by the banks, get a bit of sticker shock when dealing with a factor.
Last years were marked by significant consolidation in factoring community. If in mid-1980s there were 33 major factors (those with factored sales in excess of $1 billion), today there are only 6, of which two are bank-owned. Industry insiders predict further consolidation and acquisitions of major factors down the road. At the same time, non-traditional players are entering the market and fill certain industry and product niches. Those new entrants are playing a key role in the factoring space - providing capital to smaller and mid-size businesses that are often overlooked by the major factors. These factors benefitted from some of the larger factors exiting the market, including some big banks and ABL player Textron Financial.
It is expected that the industry consolidation will continue to benefit new smaller and specialty factors, as well as the credit crunch environment and the reduced competition from the traditional banks.
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