Factoring and customers’ needs
Evidence from a new survey in the Italian market
IFG GM Club 2009 – Milan, February 5th ’09
Massimo FERRARIS, General Manager Ifitalia and VP Assifact
Agenda
The survey on factoring demand by SDA Bocconi Business School
The use of commercial credit
How enterprises see factoring
The use of factoring
The level of satisfaction in the factoring relationship
Factoring and business management
The debtors’ point of view
Factoring and Basel 2
Factoring and IAS
Factoring is a tool well known and widely used in economic and financial systems.
Factoring market has been growing all over the world steadily and significantly for
many years.
Italy is one of the most important factoring markets in the world.
Despite the world-wide relevance of factoring, there are only a few studies regarding
the characteristics of factoring demand.
In 1996, the Italian Factoring Association (Assifact) conducted an important survey on
the characteristics of factoring demand (AF 1996). In particular, the survey focused
on: the perception and evaluation of the product characteristics, the relationship with
the banks and the factoring companies, the effects of factoring use on the enterprise
management and finance.
After twelve years, the Research Department “Claudio Demattè” of SDA Bocconi
Business School, on behalf of Assifact, has returned to this topic (SDA 2008), with
the aim to better define the most relevant profiles of factoring use by Italian
enterprises.
The survey on factoring demand by SDA Boconi
Survey questions:
What do Italian enterprises think of factoring ?
How do Italian enterprises use factoring and how do they
evaluate its convenience ?
What are the reasons of satisfaction or dissatisfaction in
a factoring relationship ?
What are factoring perspectives with regard to the new
The survey on factoring demand by SDA Bocconi
The sample
The sample was composed of 100 enterprises with different features. The
sample can be considered to be representative of the actual and potential
customer base of the factoring market.
MANUFACTURING 37% BUILDING 7% PRIVATE NON FINANC. 49% CENTRAL BODIES/ENTITIES 2% LOCAL BODIES/ENTITIES 3% STATE/GOVERNEMENT BODIES/ENTITIES 2%
Sample by industry sector
The main features of the sample were:
enterprises’ date of establishment in a wide
range (from 1831 to 2007);
on the average, enterprises ‘older’ than the
ones of 1996 survey;
43% of enterprises with less than 100
employees;
88% of enterprises with mainly domestic
turnover (min. € 200.000, max. € 30
billions);
The use of commercial credit
Commercial credit mainly represents a way to fund the customer
and a strategy of sales expansion; it also contributes to match
incoming and outgoing flows.
a guarantee of the product’s quality 7% a strategy of Sales expansion 19% a way to match incoming/outgoing flows 19% a tool to assess reliability of the counterpart a tool to establish a lasting relationship with the counterpart 15% a way to fund the customer 25% other 5% No opinion 2%
Main issues:
payment delays;
high costs in credit management.
0% 5% 10% 15% 20% 25% 30% 35% 40% Customers’ insolvency 18% 39% 22% 17% 4%
What are the main issues in the use of business credit?
High payment delays from customers
High costs in credit management
Difficulty to assess the counterpart Other
How enterprises see factoring
A comparison with the results of the 1996 survey clearly shows a greater
awareness of the service components of factoring (risk protection and
credit management facilities).
16%
A source of funding, alternative to bank loan
What does factoring represent?
Survey
SDA 2008
A source of funding complementary to bank loan
26%
A guarantee against debtor’s insolvency
25%
A tool for professional credit management
19%
A way to recover bad debts
7%
Other
6%
0% 5% 10% 15% 20% 25% 30% 35% 1 2 3 4 5 6 7
What does factoring represent?
(by turnover ranges)< 25 Mln 25 ‐ 250 Mln over 250 Mln
1. a source of funding alternative to bank loan 2. a source of funding complementary to bank loan 3. a guarantee against debtor’s insolvency
4. a tool for professional credit management 5. a way to recover bad debts
6. other 7. no opinion
The higher the users’ turnover, the
less factoring is perceived as a mere
source of funding and the stronger is
the perception of factoring service components (risk protection and credit
management facilities) 2008 survey confirms the results of 1996 survey
Answers by turnover ranges (< 25 – over 250 Mln Euro)
How enterprises see factoring
The use of factoring
The sample enterprises have been using factoring as follows:
almost 50% has been using (or used) factoring for over 5 years;
32% has been using (or used) factoring for less than 3 years.
For large enterprises factoring
Is a valuable business tool:
50% has been using (or used)
it for over 10 years.
Factoring relationships tend to
be of longer duration also for
enterprises which:
• regularly use factoring;
• significantly use commercial
credit.
32% 14% 23% 26% 5% 37% 26% 27% 9% 1% 0% 5% 10% 15% 20% 25% 30% 35% 40% 1 2 3 4 5If you are (or were) a factoring customer, how long have you been using factoring?
SDA 2008 AF 1996
1. 1‐3 years 2. 3‐5 years 3. 5‐10 years
4. More than 10 years
A comparison with the results of the 1996 survey shows an evolution in the duration of the factoring relationships: factoring tends to be used for longer periods of time and more regularly.
The use of factoring
Among the sample enterprises:
45% have a business relationship with only 1 factoring company;
41% have a business relationship with more than 1 factoring companies ( from 2 to 4);
14%, mostly large enterprises, have a business relationship with more than 4 factoring companies;
71% of the experienced customers have business relationships with more than 1 factoring
companies;
the less experienced customers (57%) prefer to have only one factoring relationship.
How enterprises get acquainted with factoring
40% through direct contacts with a factoring company;
27% through banks (in particular small enterprises);
A comparison with the results of the 1996 survey shows a lower relevance of banks as promotion vehicles for factoring.
7% gained knowledge of factoring through enterprises which already used it;
26% (in particular large enterprises) gained knowledge of factoring through other sources, mainly direct knowledge or previous experience.
The use of factoring
The reasons for using factoring
Customers which
occasionally use
factoring tend to
consider more
important credit
risk coverage
(30%).
9% 21% 36% 6% 17% 10% 0% 5% 10% 15% 20% 25% 30% 35% 40% Reduction of bank loanIncreased growth of the business Cash Recover unsettled invoices/bad debts A guarantee against debtors’ insolvency Outsource the credit management
Your company adopted factoring, because…
The use of factoring is mainly due to liquidity requirements (36%), strong
growth of the business (21%) and necessity to cover the risk of debtors’
insolvency (17%).
The level of satisfaction in the factoring relationship
The level of satisfaction in the factoring relationship is considered:
good by 62% of surveyed companies
excellent by the 15%
sufficient by the 20%
poor only by the 3% of companies, but this % is higher among former customers
(14%).
4% 39% 50% 7% 0% 9% 72% 19% 0% 10% 20% 30% 40% 50% 60% 70% 80%poor sufficient good excellent Level of satisfaction in the factoring relationship
Occasional users Systematic users
Occasional
factoring users
are less satisfied
than those who
use factoring
systematically.
Debtors do not like to pay via the factoring company Automatic financing of the
sales growth
Low amount of funding (%) Internal costs of credit
management do not decrease significantly Possibility to assign the
entire customers’ portfolio
No significant reduction of internal costs of credit management Unefficient management services Factor’s experience in credit management Cost Only some customers may
be assigned Guarantee against debtor’s
insolvency
Lacking/Dissatisfying insurance services against debtors’ insolvency
Cost Speed and certainty of
funding times
Main reasons for
abandoning factoring
(former customers)
Main reasons for
dissatisfaction
Main reasons for
satisfaction
Those who rate factoring being more expensive than bank loan
consider that it is a more complex and complete service (about
41%).
Only a minority think that factoring mainly serves companies that face
financial weakness (5%). Although, opinions significantly differ among
business categories.
Why does factoring cost more than
bank loan?
Customers
Former
Customers
Non
users
Factoring is a more complex and
complete service than bank loan
45%
29%
35%
Factoring companies usually serve
customers facing financial
weakness/troubles
3%
14%
9%
The level of satisfaction in the factoring relationship
Most of surveyed companies consider that the cost of factoring has
to be compared with the average cost of financing and the
internal cost of credit management (53%) or, but less frequently,
with the cost of bank loan (33%).
From the 1996 AF survey to the 2008 SDA survey,
the perception of factoring evolved into
“an integrated system of financing and services”.
In the same way, also the costs evaluation has
evolved: internal credit management is taken more
The level of satisfaction in the factoring relationship
The cost of factoring should be compared with: Expert Users Less expert Users Occasional Users Systematic Users
The cost of bank loan 26% 43% 57% 23%
The cost of supplier credit 9% 7% 4% 9%
The average cost of financing and the
internal cost of credit management 56% 43% 28% 63%
Other 9% 7% 11% 5%
More expert and systematic users are more likely to evaluate factoring
costs in comparison with the internal costs of credit management.
58% of users dissatisfied from factoring cost are more likely to compare it
Factoring and business management
From a financial standpoint factoring mainly enables users to optimize
the collection planning and, less frequently, to solve temporary or
chronic financing needs.
Solve chronic financing needs 19% Solve temporary financing needs 18% Optimize collection planning 48% Increase turnover growth 8% Other 7%
Factoring and business management
From a financial standpoint, factoring enables your company to:
Small Enterprises Medium Enterprises Large Enterprises
Solve chronic financing needs
31%
15%
12%
Solve temporary financing needs
26%
18%
6%
Optimize collection planning
39%
43%
70%
Increase growth of turnover
4%
9%
12%
Other
0%
15%
0%
The larger is the enterprise, the more frequently factoring is
considered as a tool to optimize cash flows planning.
Factoring and business management
Factoring customers use advanced funds:
mainly to refund their dues
less frequently to finance sales growth (mainly among expert users and
medium enterprises)
rarely to be invested.
82% of surveyed companies with a well developed use of commercial credit,
if compared with competitors, use advanced funds to refund their dues.
Compared with the past,
the % of companies investing in sales growth has decreased (19% in ’08
vs 36% in ’06)
the % of companies using finance to refund their dues to suppliers or
The customers’ (debtors) point of view
Surveyed companies believe that:
their suppliers use factoring mainly because they need cash (50%)
assigned customers (debtors) consider turnover assignement like something usual
in the business management (38%) or like a disturbing event in the relationship
with the supplier (31%).
something usual in business management 38% 15% 11% other 5%
Debtors consider turnover assignment to a factor/bank like:
Lower % of those
believing that debtors
see turnover
assignement like:
an evidence of
supplier’s financial
weakness (15%)
an evidence that the
supplier is taking care
of credit management
and cash-flows
planning (11%)
A disturbing event in the relationship with supplier Evidence of financial
weakness of the supplier Evidence that the supplier
takes care of credit management and cash‐flow planning
Factoring and Basel II
32% of surveyed companies believe that their standing towards financial partners and lenders will be strenghtened (mainly for small enterprises); 47% believe it will remain unchanged.
Companies expect to increase their equity (25%), to enrich the company information available for their lenders (23%) and to focus on selection of their customers.
Almost half of them believe that, in the Basel 2 perspective, factoring companies assess customers differently from banks (63% of large enteprises).
58% believe that factoring may improve the company standing towards lenders because
it reduces debts, it improves the financial structure and treasury and it helps the business growth by boosting the working capital.
This may result in an increased use of factoring by enterprises (20%).
67% of factoring systematic users (vs 46% of occasional users) believe that using factoring may improve their standing towards lenders, mainly because of its positive effects on working capital and business growth.
Factoring and IAS
Only 1/3 of companies have a IAS compliant balance-sheet. Among them only a
few perceive a different behaviour of lenders (24%) in terms of quantity, costs,
timeframes, guarantees.
For 57% of surveyed companies, IAS have added complexity to accounting and
fiscal processing, but have improved the way to express the business value
(69% have registered positive effects of new accounting standards on
balance-sheet).
63% of IAS compliant companies interviewed identify the factoring benefits
related to the derecognition off balance-sheet: it improves balance-sheet
ratios and financial standing.
70% of large IAS compliant enterprises believe they get benefits from the
derecognition, while smaller enterprises have a lower perception of it (50%).
71% of commercial credit users believe they can get benefits with lenders thanks
to the credit derecognition off balance-sheet.
For 66% of surveyed companies, the use of factoring is expected to grow further (vs a less optimistic 46% of companies surveyed in 1996).
Factoring systematic users (84%), satisfied users (90%) and commercial credit users (84%) are more inclined to forecast a further development of factoring.
97% of current users intend to continue the factoring relationship in the future.
More than 1/4 of non users intend to start a factoring relationship in the future, mainly as guarantee against debtors’ insolvency.
More experienced and non occasional users clearly understand factoring benefits and peculiarities and show to use it “correctly” as a tool.
Some prejudices and clichés on factoring still exist instead, mainly among less experienced users, who use factoring rarely (and badly). On-going information and education are needed to help enterprises to fully understand the multiple capabilities and benefits of the factoring tool.
Surveyed companies, nevertheless, are aware that factoring is a financing tool to support working
capital. More frequently companies appreciate factoring as a credit management tool.
