Why Businesses Increasingly Rely on Factoring

Photo of an invoice with a Past Due stamp.

At Business Finance Corporation (BFC), one of the frequently asked questions about invoice factoring is the perception it might have on a business’s reputation with clients. A new study shows how much businesses rely on factoring and how its accepted use is growing.

Factoring, also known as accounts receivable financing, plays a crucial role in providing liquidity to businesses by allowing them to convert their outstanding invoices into immediate cash. The use of this financial tool has seen significant growth in recent years.

The average factoring fee ranges from 1% to 5% of the invoice value on a 30-day invoice, depending on the industry, client creditworthiness, and other factors. In contrast, the average bank interest rates for a Business Term Loan are between 8.49% to 36% and 7.5%-24% for an Equipment Financing Loan.

The ease of obtaining factoring financing versus bank loans is driving the increased use of factoring. Another driver is the creditworthiness checks, and the considerable collateral banks require for a business loan.

According to the research firm Market.US, The factoring market is expected to reach a significant valuation of $7,019.8 billion by 2033, with a projected Compound Annual Growth Rate (CAGR) of 6.4% from 2024 to 2033.

Bar Chart showing the growth in the use of invoice factoring

The increased use of factoring has been spurred by the greater need for working capital and cash flow optimization beyond what is offered through traditional bank loans. Factoring offers a quick and accessible solution that allows companies to unlock the value of their earned receivables and maintain a healthy cash flow. This will enable businesses to finance trade transactions, mitigate risks, and bridge the gap between invoicing and payment cycles.

The rise of small and medium-sized enterprises (SMEs) and new start-up businesses has also contributed to the growth of the factoring market. Due to limited collateral or credit history, SMEs often face challenges accessing traditional financing. Factoring offers a viable alternative, as it relies on the creditworthiness of the debtor rather than the borrower, making it more accessible to SMEs and start-ups.

In 2023, domestic factoring held a dominant market position, capturing over 61.0% share due to increasing demand from SMEs seeking immediate liquidity solutions within their home countries.

Technological innovations have streamlined the factoring process, making it more efficient and accessible for businesses of all sizes. The adoption of factoring services among small and medium-sized enterprises (SMEs) grew by over 25% in 2023 as businesses sought to improve cash flow management.

Many industries use factoring as a means of increasing capital when needed.

  • The manufacturing sector accounted for more than 25% share in 2023, highlighting its extensive need for working capital and reliance on factoring services.
  • The adoption of factoring services in the healthcare industry grew by over 30% in 2023 as medical practices sought to improve cash flow and manage accounts receivable more effectively.
  • The adoption of factoring services in the staffing industry grew by over 15% in 2023 as staffing firms sought to manage cash flow and mitigate the risk of non-payment.
  • The adoption of invoice financing and factoring services among freelancers and gig workers grew by over 30% in 2023 as they sought to improve cash flow and manage their finances more effectively.

At Business Finance Corporation (BFC), we provide customized financial security through factoring on a personal level with local Las Vegas-based staff. Our website makes establishing a factoring account quick and easy, and we serve dozens of industries. Call 702-947-3800 to speak with one of our customer service representatives and convert your accounts receivables into cash.

Your Partner in Success.

David Cabral