In recent years, global supply chains have faced unprecedented challenges, from pandemic-induced disruptions to geopolitical tensions and economic uncertainties. As businesses grapple with these issues, factoring has emerged as a critical solution for managing cash flow and mitigating risks. SFNet members provide insight into how factoring has evolved, its impact on the supply chain, and real-world examples of its effectiveness.

Paul Schuldiner, executive vice president & chief lending officer, Rosenthal & Rosenthal, Inc., notes that the demand for factoring services has increased in response to ongoing global disruptions. “The global supply chain disruption, coupled with a softer retail market, has led many businesses to rely more on inventory within their borrowing capacity,” Schuldiner explains. This shift has been driven by lower or stagnant sales in many retail segments, coupled with the end of government support programs like PPP and EIDL. These factors have collectively increased the need for non-recourse factoring and credit protection.

As companies face tighter credit conditions and a more uncertain market environment, factoring has become an indispensable tool. Schuldiner points out that in Rosenthal’s recourse factoring division there has been a notable influx of requests from service and manufacturing businesses. “The end of government support programs and the tightening of bank lending standards have prompted many companies to seek liquidity through factoring,” he says. This trend underscores the growing reliance on factoring as a flexible and responsive financial solution.

Martin Efron, executive vice president/head of factoring, White Oak Commercial Finance, adds: “The recent disruptions in global supply chains have highlighted some lenders’ lack of understanding of their borrowers’ business cycles. As a result, many got uncomfortable with higher loan balances and higher inventory positions. Factoring has historically played a very big role in supporting middle-market manufacturers and importers, and this time wasn’t an exception. We saw plenty of opportunities during the supply chain disruptions.”

Rochelle Hilson, senior vice president, notes a shift in demand patterns over recent years. “Prior to the COVID-19 pandemic, demand for factoring services was strong due
to the need for predictable working capital,” she explains. The COVID-19 Pandemic brought mandatory shut-downs, disruptions in the supply chain, and availability of less expensive sources of capital from the government - including the Paycheck Protection Program, the Economic Injury Disaster Loan, and Employee Retention programs and credits leading to a decline in demand for factoring services in 2020, which lingered into 2021 and 2022. “Disruptions in the global supply chain have posed challenges for factoring companies. Factoring companies have worked to improve risk management and offer additional hybrid facilities which might include inventory or purchase order financing. As economic conditions have improved, companies are again looking for the consistent and predictable working capital that factoring provides,” Hilson says.

Mike Hudgens, president of CIT Commercial Services, a subsidiary of First Citizens Bank, highlights the impact of global supply chain disruptions on factoring demand.
“Decreased numbers of active ships due to soft demand, attacks in the Red Sea, and drought in Panama are causing longer transit times and increased lead times for goods in the U.S.,” Hudgens explains. These disruptions have heightened the need for working capital support, making factoring an ideal solution. “Factoring provides discretionary lending that can easily increase to support growth in inventory and accounts receivable,” he adds. This flexibility is crucial for importers and retailers facing extended lead times and financial uncertainty.

“Retailers are also looking for working capital enhancement, often in the form of longer terms, which increases risk for the suppliers and leads to delays in them getting paid. That - in addition to turmoil in the retail space in the form of restructuring, mergers, buyouts, etc. - is an indication of the importance of non-recourse factoring with a partner that knows the industry, can appropriately assess the risk, and has the balance sheet to support the required financing,” Hudgens says.

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