Paragon Financial announces factoring gained in 2012, and should continue to increase, though modestly, in the current year, according to discussions we had with several industry participants and observers.
The overall value of factoring activity may have increased between 3%-5% in 2012, greater than the approximately 2.2% growth of the overall economic GDP of the country as a whole, according to Bert Goldberg, Executive Director of the International Factoring Association (IFA), based in Florida.
Factoring should continue to increase this year a bit more rapidly than the economy as a whole, Goldberg suggested, but it is difficult to quantify because of the particular uncertainties involved in national economic policy, and whether or not there will be any further tax/revenue increases in the coming months, Goldberg said.
Factoring Growth Tied to Economy and Lender Caution
Based on the economic uncertainties, the factoring industry as a whole will continue to face considerable challenges in 2013, just as it did in 2012. Typically, however, when the economy is experiencing difficulties and lenders are cautious, as is the case today, businesses of necessity turn to factoring for more-available cash flow.
In 2012, he says, transportation, temporary staffing and manufacturing showed some growth, which translated into increased factoring.
For 2013, Goldberg is reluctant to pinpoint the areas of greater factoring growth because he says, “so much depends on what happens in the overall economy.”
Growth Areas for 2013
When asked about suggestions that staffing (especially IT staffing), oil & gas exploration and government contracting are likely to be growth areas for factoring this year, he reiterated the notion that it depends on the economy going forward this year. Yes, he indicates, if oil & gas continues to increase rapidly, then that should be one area of significant growth in factoring. The same would hold true for other industry sectors that grow more than the average this year.
In addition to domestic activity tied to the US economy, Goldberg sees longer-term potential growth for the factoring industry in China, Latin America and Europe, based on the IFA’s research among its members.
Robert Katz, a managing director of turnaround consulting firm Executive Sounding Board Associates, in Philadelphia, with significant expertise in factoring and asset-based lending, said that oil & gas is certainly an area that is expected to grow in the near term, with factoring playing a significant part in financing the activity.
As global energy demand continues to increase, the oil and gas industry must continually up its search for new energy sources. These energy sources are being explored and located in developing countries including China and India, as well as in deep water and the arctic regions. Further, huge attention has been given to developing unconventional sources in the US, including shale oil and fracking.
Given the size of the risk in unconventional exploration, Katz says that factoring is likely to play an increasing role, but that factors will have to understand the industry well because of the risks involved.
Staffing, too, he said, is ripe for continued growth in factoring, as many more individuals go onto staffing rolls from traditional in-house positions. “Staffing has always been hot, and should continue to be so,” he added.
Katz added said consumer durable goods firms are likely to increase their factoring activity this year, as demand improves but the economy remains sluggish.
Government Contracting Factoring Should Also Increase
Factoring for government contractors is expected to increase significantly this year, as receivable turnover from all levels of government is likely to slow down even further, reflecting fiscal problems across state, local and federal government agencies.
Again, Katz notes that factoring firms participating in this market need to understand the ins and outs of the government contracting business in order to achieve profitable rates of return from this type of business.
Overall, as in 2012, the factoring industry will face significant challenges, as the economy struggles to continue its weak recovery, and government continues to tighten its belt.
For more than 18 years, Paragon Financial Group has provided working capital solutions for growing companies throughout the U.S.