Three quarters of 2022 are now behind us. During this time, several trends in the factoring industry have shown, that are worth discussing in a broader context. Let's take a look at some numbers:
EUR 3 trillion
That's the factoring turnover in 2021 worldwide, as reported by Factor Chain International. This turnover was 13.6% higher than in 2020. It shows not only that the factoring industry is resilient to crises and macroeconomic turmoil, but that factoring is becoming increasingly attractive to businesses.
It is worth mentioning the solutions that the system can provide:
Scalability – modern technology allows the system to select on its own the appropriate computing power needed for efficient operation in conditions of constantly increasing number of users or volume of processed data. This involves an increase in the demand for hardware or program resources.
Microservices architecture – a style of application architecture that implements the service-oriented architecture pattern. The modern application is no longer a monolith, as it was a few years ago. Thanks to this solution, the system can be upgraded more often, and what's more, upgrading one microservice won’t affect the availability of other microservices.
Availability – the system should be available around the clock. It is worth mentioning here the system failures of large services such as Facebook: an outage of 2–3 hours results in any information about end-users expressing their dissatisfaction finding global media coverage. And we’re only talking about a social network. If we consider more critical services, such as banking systems, the reaction of end-customers can have far more critical consequences for their operators. In this case, the availability of funds, the ability to carry out transfers and one's payment obligations may all be restricted, and these are key issues for all bank customers.
That's the number of pages of the manual for a premium brand car. And here the question arises: does anyone even read such manuals?
For example: when buying a cell phone today, the only things that are to be found in the box are a phone and a USB cable. There is no manual. The manufacturer assumes that the end-user will be able to intuitively operate any phone without checking the manual.
Another question worth asking is: should the system include a manual, or will it be sufficient to only include the tutorials of the most complicated functions in the system?
Perhaps it should be assumed that we are already able to perform basic operations (e.g., transfers) intuitively without the need for instructions? Of course, IT providers must provide such documentation. In addition, a description of the system's infrastructure or the hardware necessary for the system's operation is essential, but perhaps a new trend is slowly being created here?
600 million invoices
If assumed that the average value on an invoice bought by a factoring company is EUR 5,000, and divided by the abovementioned value of factoring turnover worldwide in 2021 (EUR 3 trillion), this is how many invoices the system should handle.
Here we should focus on how to improve the work of the factor's employees, working in the factoring system on a daily basis. It is worth to distinguish in particular the automation of several aspects:
a) generating, parameterizing and entering contracts into the system;
b) payment matching – with the use of appropriate algorithms, achieving 85–90% is realistic here, which will greatly facilitate the work of factoring operations teams;
c) streamlining the work of the risk team – this is also extremely important. Once a contractor is reported to the contract by the end-customer, the risk team should receive data checked by all available databases, and additionally the report should be supported by AI-generated information on the contractor’s risk of bankruptcy in the near future.
All this leads to one thing – freeing up the time of the factor's employees, so that they can devote it to other activities:
"Communicate daily with your customer. If they are talking to you, they can’t be talking to your competitor." – Jack Welch
It is taking care of the customer that is key today.
In my opinion, within 3–5 years factoring will not only be the most important product among entrepreneurs, but also among financial institutions. Of course, flexibility or better risk diversification are just some of the advantages of factoring.
But in the near future, when maintaining and taking care of liquidity will be even more crucial, no product will perform as well as factoring.