According to the World Factoring Year Book 2022, the preliminary statistics for 2021 show the receivables finance industry increased by 13.5% after the negative impact of Covid-19 in 2020. This is the first double digit increase in trade volume in receivables in two decades. At the same time the GDP bounce back after Covid-19 was, on average, 6%. These are impressive figures.
However, it should be remembered that as the threat of Covid-19 diminishes globally, there has been shocking spikes in inflation. The higher costs for goods and services means larger invoices and of course larger factoring fees as they are calculated as a percentage of the sum being factored.
For historical context after the Great Depression, the years from 1938 to 1948 saw the CAGR (compound annual growth rate) for the US economy rise by 13% and the CAGR for the US factoring industry for the same period increased by 9%.
Thus, the factoring industry has previously shown resilience to economic downturns, and is capable of bouncing back strongly.
What is to Come?
In 2022 the economy has seen a number of worrying developments: fiscal stimulus is being reduced, rising inflation, banks tightening monetary policy and raising interest rates, supply chain issues and the continuing war in Ukraine. Against this backdrop you would expect industry to suffer.
However, far from it. The FCI’s (Global Representative Body for Factoring and Financing of Open Account Domestic and International Trade Receivables) own platform for factoring has recorded an increase of 30% in factoring deals for the first half of 2022.
The reason for this is that the factoring industry is secure. It produces assets through securitisation that remain attractive to investors looking to find safe places for their money during these troubling times.
So, to answer the question – I can’t predict the future. For the immediate future more of the same should be expected. How governments choose to deal with recessions in their countries is an unknown. It is possible that right of centre parties will seek to reduce the size of the state and impose a form of austerity. Left of centre parties will more likely adopt a Keynesian approach and seek to spend their way out of recession by investing in infrastructure projects, such as Joe Biden is doing in the USA with his drive to create more highly paid jobs in the ‘green’ sector.
Once the war in Ukraine is over it is uncertain whether Russian oil and gas will move freely and in large quantities to Europe. However, the cessation of hostilities will reduce inflation which will in turn slowly bring down interest rates.
