Top three predictions of factoring post COVID.

The concept of factoring has its roots to Roman times, however the COVID kicked off a great amount of acceleration in the adoption of processes powered by the new age technologies. The predictions are that the factoring will be in high demand post pandemic, as banks cuts off the credit facilities, SMEs are looking beyond traditional financing to mitigate the risk of their receivables. With the significantly increased volatile environment, factoring is way ahead.

Following are some of the predictions for the future:

• Commercial bank

Despite several government initiatives to support SMEs, commercial banks will continue to stay conservative and will keep credit lines very tight for the segment. Expect commercial banks to become much more conservative, pulling lines especially on SMEs and other risky sectors. 

• Export Credit Agencies

The underlying reasons for the disruption are different than those of past crises however, the result is the same where exporters / SMEs are facing barriers in accessing financing. ECAs continue to act quickly to fill the gap by mobilizing export support programs. ECAs have increased the capacity of existing programs, created new facilities and extended their limits of cover to include new risks.

• Supply Chain Finance

With the commercial bank cutting off the credit facilities, Supply chain finance (SCF) customers are already feeling the pinch. Most SCF programs are uncommitted by the financial institutions and may get eliminated primarily owing to liquidity which will not be as abundant as before with financial institutions and commercial factors. Corporate are also looking to diversify the sources of funding.

With business volumes severely impacted due to COVID 19, there is and will continue to be an increase in delinquency rate from the risky sector namely SME, hence an extension of terms will be expected to rise. Having said that, with the crisis, there is an anticipation of an increase in the percentage of advances to factoring accounts, although the volumes may not reach pre COVID 19 for another year or so.