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Digitalising Factoring for Business Expansion

What does factoring look like in the era of digitalisation, and what hurdles must be conquered? Learn more in SCHUMANN Business Insights.
SCHUMANN Business Insights
10.11.2023, Robert Meters

Unlocking Growth: Using Digitalisation for Factoring Success

The digital transformation of the factoring industry offers numerous avenues for growth. Factoring companies are increasingly relying on integrated IT solutions that facilitate end-to-end digital processes for assessing and acquiring receivables. In a recent SCHUMANN Business Insights interview, Robert Meters and Stefan Vogel delved into this crucial topic.

What Does Factoring Look Like in the Age of Digitalisation?

Digitalisation in factoring extends beyond the mere conversion of paper records into digital formats or the use of software to support manual tasks in isolated processes. These conventional approaches are still resource-intensive and costly. True digitalisation encompasses much more.

What Challenges Must Be Overcome?

Digitalisation relies on data for its digital processes, but many factoring companies still operate with outdated data structures. While their current processes may be functional, their ERP systems lack scalability. To fully harness the potential of digitalisation, factoring companies must reassess their opportunities and existing processes, with a commitment from stakeholders. Moreover, a change in the mindset of factoring companies is paramount. Instead of managing IT projects internally alongside their daily operations, they should consider engaging external experts who possess market insights, best practices, and project management skills. Regulatory concerns also demand attention.

How Can Digitalisation Enhance a Factoring Company's Competitive Position?

Digitalisation accelerates the entire onboarding and funding process, offering seamless access to data for portfolio management, reducing reliance on manual methods. Additionally, digitalisation enables factoring companies to overcome balance sheet limitations and manage larger portfolios, provided risk mitigation measures are integrated. These risk mitigation techniques not only minimise potential losses but also ensure regulatory and business compliance, facilitating easy data access for reporting. Improving the customer experience is equally crucial, as it is more cost-effective to retain existing customers than acquire new ones.

What Digital Core Functions Are Vital for Scaling Factoring Businesses?

A user-friendly and professional front-end interface is essential to attract and retain customers who prefer conducting business online. Factoring companies benefit from digital customer onboarding and digital management of buyer limits, enhancing the customer experience and business growth prospects.

Digital processes with automated links to data providers and trade credit insurance speed up decision-making, reducing response times from days to minutes, depending on the credit portfolio. In the factoring landscape, digital positioning is gaining prominence, especially for granular portfolios.

Fully digitised processes and embedded trade credit insurance enable asset decisions based on payment behaviour analysis from both a company's own portfolio and that of the factoring company. Therefore, analysing payment experiences should be integral to an end-to-end solution's data analytics.

What Can We Expect in Terms of Future Connectivity Between Business Partners?

The future of the factoring market necessitates "one-stop-shop" factoring solutions for all stakeholders, including clients, factoring companies, information providers, and trade credit insurers. These solutions should offer seamless connectivity without IT- and software disruptions, presenting factoring companies with substantial opportunities for expansion.

What Are the Key Takeaways?

Embracing digitalisation requires a fundamental shift in mindset. Central to this transformation is the imperative of improving the customer experience. Achieving growth and scalability for your business is not only possible but also prudent, as long as you prioritise fast funding decisions and leverage digital portfolio management to minimise risks. Moreover, fostering closer customer relationships is a strategic move that can significantly boost retention rates and ultimately drive higher profits.

About the Author
Robert Meters

Robert Meters is Director of Global Business at SCHUMANN. He studied Business Administration and International Management at the University for Economics and Management in Düsseldorf and Essen. He has been in the credit risk management industry since 1993 and has worked for leading information service providers as well as in the telecommunications industry.

He advises and takes care of customers in the automation of credit risk management for the financial services sector with excellent references in leasing, factoring, banking and trade credit insurance.

Director of Global Business, SCHUMANN

Meters Robert