Will factoring companies continue to provide financing?
Last week, we spoke with the main French factoring companies. Teleworking has been fully deployed. They are fully operational to ensure financing for their clients and have confirmed their willingness to support them and maintain funding.
In addition, we contacted most of our major clients and, to date, have not observed any disruptions or delays in their factoring (factor) financing. Over the past seven days, companies have in fact significantly increased the assignment of receivables in order to maximize available funding from their factor.
Will factoring companies continue to set up new financing arrangements?
Factoring companies are currently adapting their credit committee processes to extend existing programs and onboard new clients. For example, they are implementing measures to overcome potential obstacles related to lockdown conditions (video-based audits, electronic signatures, etc.).
Bpifrance and banks will play a major role in financing the significant “economic gap” caused by activity shutdowns and delays, through the €300 billion government-backed support package. Factoring companies also have, and will continue to have, an important role in anticipating and financing the recovery phase after the crisis.
What are the consequences of the COVID-19 crisis on factoring?
Some sectors that are highly active at the moment (e.g., agri-food, pharmaceuticals, IT infrastructure, etc.) are fully using their factoring lines. Conversely, other sectors have partially or fully suspended activity (e.g., tourism, events, automotive, aerospace, etc.). These companies will therefore need additional bank financing to bridge periods of sharp activity decline. During this period, factoring exposures are expected to decrease mechanically. However, because it is backed by receivables, factoring is, among financing tools, the one that offers the highest level of security both for banks (via their factoring subsidiaries) and for users.
If we refer to the 2008/2009 financial crisis experienced with our clients and factoring partners, there was no disruption in factoring financing. Over a short period (one year), most factors slightly increased pricing conditions, mainly due to higher refinancing costs and stricter regulatory capital requirements in a riskier environment. Nevertheless, none of our clients lost their factoring facility. Companies anticipating liquidity needs after lockdown should start preparing now. We recommend:
- For companies not yet using factoring: consider setting up a factoring agreement to prepare for increased liquidity needs after lockdown and potential customer insolvencies.
- For companies already using factoring: review contractual adjustments to increase financing capacity and consider extending programs to non-factored scopes (exports, subsidiaries, etc.).