Statistics indicate increasing interest in debtor finance products

A study recently conducted by the Banking Association of South Africa’s Debtor Finance Committee indicates a significant increase in the uptake of debtor finance products. The latest 2008 statistics illustrate that South Africa’s already well-established factoring market is proving invaluable in terms of both the maintenance and development of our country’s economy.

Figures submitted by the Banking Association of South Africa’s Debtor Finance Committee’s member companies indicate that interest in debtor finance products is on the rise. The period 2000 to 2008 shows a 67% increase in the number of businesses using debtor finance services and a 400% increase in the value of invoices financed. Study estimates are, furthermore, believed to be conservative as there are a number of non-Association companies offering related services, all of which did not form part of the survey.

The growth achieved by the debtor finance industry over the past thirty years is remarkable and bears testament to the value it provides for both small and developing businesses. The worldwide economic slump has played a significant role in its uptake as access to both start-up and working capital has become increasingly difficult to attain. Businesses with smaller debtor books and little in the way of asset or balance sheet collateral have been particularly hard hit in terms of their inability raise capital through traditional financing means.

Due to increased awareness and a far greater understanding of the various products on offer, the factoring industry’s steady rate of growth is a trend seen around the world for a number of years. Established and developing businesses have shown significant interest, viewing debtor finance and factoring as an alternative means to raise the capital needed for growth. A lack of job security and increasing levels of unemployment have also forced many individuals to enter into entrepreneurial ventures in an effort to foster a more sustainable economic future – hence the uptake in the lower end of the market.

In terms of the current economic climate, this trend towards entrepreneurial businesses is expected to continue. The factoring and discounting industry fares particularly well in this sector during times of economic contraction. This is due to smaller companies often being better placed to conduct business under these conditions than their larger counterparts. A reduction in available cash flow often translates into the downscaling of products and services being purchased and smaller providers can therefore prove a more cost-effective option.

Export factoring is also enjoying a resurgence of interest. Whilst imports into South Africa have increased by 16% for the period, exports, particularly into Africa, improved during 2008, predominantly due to the weakening of the Rand. This boost in exports has had a knock-on effect in the product’s uptake, facilitating both regional and international trade.

Although concerns around the risks associated with factoring and invoice discounting remain to some extent, these are greatly reduced if related services are carried out correctly. Collection statistics on client liquidations are often higher than 90% within the debtor finance industry and attributable to the strict auditing, parallel ledger and system controls that are implemented.

Whilst previously viewed as funding mechanisms of last resort, the latest industry statistics show that factoring (disclosed) and invoice discounting (non-disclosed) are finally being recognised as effective business development tools. Related products are proving instrumental in enabling companies to remain viable and prosper in both bull and bear markets, setting a firm foundation for the continued growth of debtor finance well into the future.