Factoring in 2023: banks and factors have to get ready for further growth

The event that in many ways, including economically, had by far the greatest impact on the entire year 2022 was, of course, Russia's attack on Ukraine. The effects of this are still being felt today and will most likely continue in the months and perhaps even years to come. The sanctions imposed on Russia restricted the flow of goods and resources, resulting in higher prices and longer waiting times for various goods, which were felt by the IT and automotive industries, among others.

As a result of these events and the pandemic restrictions, there is a noticeable increase in inflation. While this is bad news for consumers, the factoring industry has clearly benefited. This is shown by the record turnover results of the factoring industry not only in Poland, but around the world. No wonder – in order to secure liquidity and funds for the ongoing operation of the company, entrepreneurs are more likely to turn to factoring.

What else did 2022 bring to the factoring industry? An unquestionable milestone is the increasing cooperation of factoring companies with insurers – and this is very good news. If we take a look at the Polish market, already 55% of factoring agreements are signed in cooperation with an insurer. Also gratifying is the increased awareness of end customers that are able to pay more for the service in exchange for a peaceful night's sleep. Today, knowing about a contractor’s solvency problems at an early stage of cooperation can be invaluable.

What issues will financial institutions and factoring companies face in 2023?

Certainly, the topic of KSeF (National System of e-Invoices) will return. According to the Ministry of Finance’s plans, it will be mandatory for every entrepreneur to use the system of structured invoices from January 2024. From the factoring industry’s perspective, integration with the system will certainly be a technological challenge that should be addressed as soon as possible. However, it is worth considering at the same time that e-invoicing and a well-functioning national system for managing e-invoices is also a considerable opportunity and unequivocal benefits for factoring, such as reducing fraud.

It is also encouraging to see the enthusiasm for moving to virtual and the further digitization of financial institutions. As we enter 2023, we still need to keep in mind that individual customers and entrepreneurs increasingly want to handle more banking and financial matters without leaving their homes or offices. The factoring industry is making progress in this regard, but there is still much to be done. There are still only a handful of factoring companies in Poland that offer the full factoring process online without the need to visit a branch and sign the documents. There is a need to encourage closer cooperation between traditional factors and fintechs and mutual exchange of experience. Fintechs have long had their processes mastered in the online form and are highly trusted by customers.

A trend that is heading our way and that will visibly develop in the coming months is Embedded Finance. End customers are placing increasing demands on financial offerings and access to the maximum number of services from one place. Financial institutions are beginning to understand this and are not only making it easier for end customers to access various services from within the app, but are also expanding the range of products. Such solutions are mutually beneficial – not only will they make life easier and more convenient for customers, but they will also strengthen the relationship and build their attachment to a particular bank or factor.

Having observed the factoring industry for several years, I am convinced that the positive growth trend in double-digit percentages will certainly continue. Such results are primarily influenced by the growing interest in factoring among customers that appreciate the assumption of the risk of contractor insolvency, the immediate improvement of the company's liquidity, or the increasing availability of online services. 

Such advantages of factoring and its value to companies in the current economic climate make it bold to say that within five years it will be the most desired financial product in the world. And if that's the case, banks and factoring companies need to be properly prepared to meet upcoming market expectations.