The past year is going to be one that every business remembers for decades as a make-or-break moment in their history. Small and medium-sized enterprises have especially been hit hard by the COVID-19 pandemic, with many already having to make the painful decision to close their doors because of lockdowns, slowdowns, or other significant blows brought on during these critical times.
However, it’s important to note that recent financial trends reveal a bright spot for many businesses. There has never been a better time since the Global Financial Crisis for businesses of all sizes to be able to access financing. The number of SMEs struggling to access financing has continued to fall since 2009, no doubt due in part to an increase in the availability of alternative financing. And even though bank loans remain the primary source of funding for SMEs in the EU, invoice factoring has continued to gain ground in the EU financing landscape. In 2019, factoring and commercial finance had represented 11.3% GDP of the EU (compared to 10.9% in 2018). Totals for factoring turnover for EU countries exceeded €1.9 trillion, showing nearly an 8% growth year on year in factoring turnover. This is by no means a fluke nor a coincidence; rather, it is the 11th year in a row of growth and was the third year in a row with a yearly increase higher than the six years’ market compound annual growth rate of 7%. This shows that factoring’s progress has outpaced any progress that would merely be the result of good economic conditions. Clearly, invoice factoring is establishing itself more and more as a major player in financing.
The advancement of AI and machine learning has unquestionably played a significant role in factoring growth, which in turn has helped businesses—especially SMEs—receive the financing that has evaded them for years. Thanks to AI’s ability to assess the risk of a particular factoring transaction in a matter of seconds rather than a matter of days, funding is received exponentially faster today than in the recent past. This is due in part to initiatives such as the EU-funded risk management system that’s Factris develops to take the tedious and expensive burden of assessing risk off the shoulders of humans and onto AI systems. These systems are given much more complete sets of data, which they can process in both a fraction of the time and at a fraction of the cost compared to previous human efforts. The result is a much clearer picture of the risk involved, as well as detecting risk far earlier and thus benefiting both factoring companies as well as the customer. As AI and machine learning continue to drive costs down and increase the availability of fintech solutions to businesses of all sizes, growth in factoring is only expected to grow in he coming years.