Factors urged to take up SCF
Factoring companies are being urged to use their knowledge of the receivables market to help develop supply chain finance opportunities.
Speakers at an International Factors Group conference in Barcelona on October 25 explained that factoring firms should take advantage of the huge demand for supply chain financing (SCF) products by building on their existing receivables offerings.
Erik Timmermans, IFG secretary general, told GTR that SCF was “a logical, natural evolution” for factors who already have a receivables finance portfolio and experience in on-boarding suppliers, which has often been raised as an obstacle for SCF providers. He added that the fact that factoring companies are getting closer to banks should create bigger opportunities and help boost the SCF sector.
“There’s a trend in the factoring world to become more and more linked to the banking environment. Big SCF programmes are very bank-driven, and as the factoring world is becoming more integrated in the banking world, factors are taking more and more of a lead in the development of supply chain finance, as they have big receivables finance knowledge,” he said.
However, he pointed out that there was still a lot of lack of knowledge about the sector, despite obvious interest from factoring companies in learning about the opportunities.
Raffeisen Bank’s factoring manager Simon Peterman said that most factoring companies already do SCF, as any financial product within the supply chain can be considered a supply chain finance product. “What we at Raffeisen call SCF is really large-scale reverse factoring, and most of us already do a certain hybrid or variety of that product,” he told GTR.
In Spain, reverse factoring, or confirming, has been very popular with factoring companies for the past 20 years, said Josep Selles, director general of Eurofactor Spain. He explained that Spanish companies traditionally tend to look for multiple funding sources, and now that the liquidity crisis has hit the majority of the developed world, he expects a boom in SCF demand globally.
In fact, a few days after UK prime minster David Cameron announced an SCF scheme in the UK, Bibby Financial Services’ head of international trade finance Simon Davies told GTR that the firm was in talks with UK Export Finance (UKEF) to help small and medium-sized enterprises (SMEs) increase exports through SCF products. “Governments are very keen in the UK and in all markets where we are based to incentivise exports, and SMEs are the forefront of this. We think that there’s a good role for us to play with UKEF for example in order to assist those smaller operators with knowledge and provide them with the technical ability to start to export,” he said.
However, there is still some reluctance among factoring companies interested in SCF, particularly linked to the technology required to offer these services. “It’s a huge investment,” Oliver Belin, business development executive at PrimeRevenue , told GTR.
“If a factoring company would like to enter an SCF programme with only one buyer and one or two suppliers, maybe they could do it themselves, but if they consider doing large programmes with cross-border transactions involving hundreds of suppliers, they will need special services, which means a whole IT connection, on-boarding support and education of the procurement team.”
Selles explained that Eurofactor uses its own software, but that there is a trend towards using third party providers. “The advantage of having an in-house software solution is that you can tailor it to your needs and services, but when you do it internally the process is longer, whereas if you go through an external provider it’s ready to use. The trend is to go to external suppliers,” he told GTR.
For Peterman, choosing between in-house software and third party provider is a strategic decision for factors, but ultimately, they are likely to use both, as well as bigger banks’ solutions through partnerships.
Co-operating with banks would also allow factors to expand their footprint and risk appetite. “The main issue is having a global platform, which would allow us to launch products simultaneously in different markets. One of the options that we’re investigating is to work in partnership with people with existing platforms. Of course banks are one of the options,” said Bibby’s Davies.