The Factoring Industry as an Engine of Economic Growth
Comprehensive Advice when Refinancing
Factoring provides companies with the opportunity of converting their receivables into instant liquidity. It thus opens up greater room for manoeuvre for a business. The ongoing purchase of receivables works because banks take over the refinancing for the factoring companies.
The Factoring Industry is a Growth Engine
There are around 250 factoring companies throughout Germany. In 2015, the volume of this growth market was Euro 209 billion. In the period from 2006 to 2015, the factoring ratio - which measures the ratio between the volume of the purchased receivables of the members of the German Factoring Institute and gross domestic product - increased by 3.8 percentage points. The turnover of the members of the German Factoring Association thus made up 6.9 per cent of the overall German gross domestic product.
The Federal Financial Supervisory Authority (BaFin) Ensures Proper Execution
The factoring companies are subject to the supervision of the BaFin and have to be licensed by it. BLB specialises in the refinancing of factoring companies. “We have very precise knowledge of the industry and good market penetration. We have been engaging in refinancing since 2010, particularly for medium-sized companies”, explains Dennis Koopmann, Deputy Group Head of Leasing and Factoring. “When factoring companies became subject to the supervision of the BaFin, in 2009, just like leasing firms, too, we were increasingly being approached by our leasing customers, who also provide factoring, to see if we could refinance their transactions. You have to know the industry very well and understand that, unlike other banking transactions, the factoring business is very fast moving. A receivable normally has a maturity period of 30 days - this means that over the course of one year the receivables turn ten times. If you think about a typical loan transaction, for example, a construction loan, then we are no longer talking about ten times a year but, instead, about once in 30 years.”
Rapid Processing of Payments for a Fast-Paced Industry
That is why, for a factoring company, fast and streamlined processing of all payment transactions is of great importance. “The feedback that we keep getting from our customers is that these processes work very well”, says Alexander Reil, Customer Adviser for Leasing and Factoring. “However, we provide something that goes beyond the ordinary scope of business. For example, we take a look, from a legal standpoint, at the contractual basis that the factoring company uses in its day-to-day business. In this case we do not provide legal advice, nevertheless, in cooperation with external lawyers/tax consultants we are happy to provide feedback. We keep an eye on the agreement and pay attention to the latest case law. Customers are pleased to have this service.”
“We also have discussions with our customers in the context of annual financial statements”, adds Dennis Koopmann. “Here, we provide a special service to our customers. Based on our overview of the industry we have developed a sort of benchmarking. For example, we check to see how well-endowed a company is with equity capital. Or what the relationship is between income and risks. There is a whole range of performance indicators and important points that we have identified for ourselves. We then pass on the results of our analysis to our customers during our discussions. The internal ranking enables customers to better evaluate themselves in a general sector comparison. That is a topic that regularly comes up in discussions. So, we would like to provide added value to our customers that goes beyond refinancing and the processing of payment transactions.”
NORD/LB Knows its Customers Very Well
NORD/LB has a precise knowledge of its customers and their figures and issues. Within the scope of the credit review, our staff examine each company on site, especially if a new business relationship is being formed. NORD/LB is acquainted with factoring companies as such but also their business and the receivables, as these constitute the collateral.
Current Issues in the Factoring Industry
The issues affecting the industry are addressed at the annual industry get-together - the Factoring Forum in Düsseldorf. At present, business is running rather smoothly so issues such as legal problems relating to data in the healthcare sector, or the need for debt collection licences for factoring companies are not causing all that much of a stir. The growing number of fintechs - companies that provide technologies for everything to do with financial services - are not perceived as constituting major competition as they specialise in very small receivables and thus occupy a business segment that is different to that of the factoring companies.
NORD/LB Cultivates Long-Term Business Relationships
Although things are quiet at present, nevertheless, the experiences from the leasing sector - from which many banks withdrew completely in 2008/09 - show that it is important to build long-term business relationships.
“We maintain regular and close contact with our customers” explains Dennis Koopmann. That is certainly the case right at the start, however, there is also frequent contact in ongoing business relationships, too.”
Future Growth Areas in Factoring
Alexander Reil sets out possible developments for NORD/LB: “For the medium term, we are contemplating expanding the business area of refinancing of factoring in the healthcare sector.
Furthermore, engaging in the refinancing of procurement financing companies would be another obvious area. Procurement financing makes it easier for a business to purchase raw materials and goods. Thus, the opposite of factoring, so to speak. For businesses, procurement financing implies an extension of payment terms and a liquidity boost - and for us it is most certainly a growth segment.”