Is Factoring Dying?
Commercial Factor, the International Factoring Association’s official quarterly magazine, just published an op-ed by the president of a California-based business financing firm, Greg Salomon. He titled the article, Is Factoring Dying? Salomon was an IFA board member from 2021 – 2024.
While the article should be read in its entirety to be fully appreciated, he made several notable references to the competition that the factoring industry has faced that are shared below:
“Much to our chagrin, merchant cash advances have become ubiquitous among small businesses. Supply-chain finance programs offered by large buyers reduce the need for suppliers to factor invoices. Fintech platforms embed credit directly into B2B marketplaces. Automation and AI reduce the need for manual invoice verification.”
“First, banks expanded small-business credit after the 2008 financial crisis, increasing their use of SBA programs and making credit more accessible. This reduced demand for factoring among companies that could now qualify for bank lines of credit. Second, online lenders filled the speed gap. Platforms like OnDeck, Rapid, and Forward Financing, along with about 5,000 MCA brokers to the main MCA platforms, offer fast, unsecured and secured loans—something factoring historically provided more slowly and with more paperwork. As we have painfully experienced, merchant cash advances offer simplicity and speed, even if at a very high cost. Many small businesses chose MCAs over factoring because they required less documentation. Third, many factors, like Goodman Capital, led by Skylar Lane, have experienced eroded ‘debtor quality’ due to Early Pay supply-chain finance lenders like C2FO and SAP Taulia.”
Salomon also cited regulatory pressure on factoring.
“States including California, where I am based, as well as New York, Utah, Virginia, Connecticut, and Florida, have implemented commercial finance disclosure laws requiring APR-style transparency for factoring and MCAs. While some updated practices mandated by the states have led to greater transparency and professionalism, they have pushed some lenders out.”
It is worth the full read here.
