Strategy at play: Is factoring making its opening on the chessboard of finance tools?

Factoring is a viable alternative to bank loans when you struggle to keep your head above water during the pandemic. The big game begins.

Based on the 2019 figures from the German factoring association, factoring is still an under-represented financing tool. Compared to the total amount of over 3,2 million companies in Germany, just over 90.000 of these are using factoring services. The overall number still seems small, but compared with the results from 2018, there’s an increase of nearly 100% in the customer base. But is the factoring development in the market pushed by bigger companies or are the small ones jumping on the bandwagon too?

Queen’s Gambit

The Queen’s gambit is a famous chess opening. In basic terms, it is when white tries to put pressure on black to control the center of the playing field. This is exactly what fintechs are trying to do on the factoring market. With easy access and low entry barriers, they will strike fast and attack established players in their center. But it is not just fintechs but also small financial companies that are starting to offer factoring products.


It is increasingly difficult for SMEs to secure funding through loans. Due to the ongoing pandemic, credit institutions are more hesitant to grant loans and cannot afford the higher risk of default payments. From 2008 to the present day, the number of factoring users has almost quintupled. The main reason for this is that medium-sized and small companies are increasingly suffering from restrictive lending requirements imposed by banks.

Like the king in chess, companies can hop over these constraints and focus on other means of financing such as factoring which helps them to further develop their business.

Compared to traditional financing methods, the requirements for factoring are much lower in Germany and the increase in liquidity is more sustainable. This enables companies to make a switch from the standard financing via their house banks to financing via factors. Also, regulators have recognized a need to catch up due to the changed conditions of the pandemic. With the introduced EBA/GL/2020/06 regulation (Guidelines on loan origination and monitoring), the European Banking Authority wants to ensure that the market has continuous access to loans.

Black and white

In every game, the board looks different from the point of view of each player. With having countless options how to proceed, it is sometimes hard to get the right perspective. The same goes for the market players in the factoring environment.

Let's assume that a company has a turnover of 12 million euros a year. Average payment terms of 45 days are customary for the customers in the industry, while suppliers have to be paid after 30 days. To improve liquidity, the largest customers, who account for a sales volume of 40%, were granted a discount of 2%. Discounts offered by suppliers in the event of early payment cannot yet be used because the liquidity is tied up due to the pre-financing of the receivables (figure 1).

If the trading company uses factoring, the liquidity improves with the first purchase with an advance of 90% by 1.2 million euros.

This means that supplier invoices can also be paid using a discount. If one assumes that with an annual cost of goods at 8,500,000 euros, a 3% discount can be used with 20% of the suppliers, this alone results in a saving of 51,000 euros.

Since the use of factoring no longer allows discounts on the customer side, the company saves a further 96,000 euros.

Thanks to the inflow of liquidity, the use of bank loans can also be reduced by EUR 500,000, thus reducing the interest expense by EUR 27,500 at an interest rate of 5.5% p.a.

The total savings are therefore 174,500 euros.

With an assumed factoring fee of 0.75% and an interest rate of 3.75% p.a., costs of 135,000 euros arise. In addition to the improvement in profitability by 39,500 euros in our example, there are other benefits to consider like the improvement of the equity ratio in the balance sheet.

check mate factoringFigure 1


The industry is changing rapidly. Not just with the emergence of new players but also with the support of new technologies. Especially, with the help of cloud solutions, the existing and new factoring providers can help their customers open a new financing chapter, providing these customers with a real alternative to bank loans. As every time the game closes it leaves opportunities for the next one, which is about to begin - in chess as well as in financing.

Felix Magdeburg autor

Felix Magdeburg

Business Development Manager at Comarch

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