Can factors reinvigorate their product line to compete with spot auction vendors, dynamic discounting, and others?
The small business is struggling to collect on invoices and providing loans in the form of extended payment terms to buyers that have far better and cheaper access to credit. The problem with the new entrants and the others on the market, that focus on small business is that when a supplier does spot invoices a few times, or batches of invoices, the client may have to return several times. At some point, the client will need a more structured financial facility rather than spot. The cost of funds for facilities are cheaper than accessing spot money from family offices, Hedge Funds, or others that are looking for double digit returns.
Factors on the other hand have relationships with many companies and offer a comprehensive set of product types – accounts receivable factoring, invoice discounting, purchase order financing, etc. Those that are preparing for the future know they have to offer new models to compete with online merchant cash advances, reverse factoring, dynamic discounting, etc. Several of them are looking to offer early-pay programs tied to buyers that make a firm date commitment to pay on a block of payables, or they are looking to aggregate all of a company’s invoices to give them a line of credit based on the total amount of invoices.
Another opportunity for factors is to build auction capabilities for spot market liquidity for their clients. Factors could develop different types of funding models based on their customer base and plugging in the credit desks of the funds management industry.
CODIX is one of the technology vendors which focus on providing factors software that could build this into their offerings and ultimately change their business model.
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