July 9, 2020
Invoice factoring has been on the steady rise for the past two decades, and it looks like it’s here to stay. In April, TechNavio published its “Global Factoring Market 2020-2024” report, predicting that the factoring market is expected to grow by $1,308.4 bn USD during 2020-2024. But, with post-pandemic hindsight, was their prediction too conservative?
The impact of the pandemic has left companies with urgent cash needs, desperate for working capital solutions. With collapsing demands and supply chain shutdowns, companies are facing poor trading conditions, creating a storm of sudden pressure on liquidity. Between cash strapped customers and cash-starved MSMEs, many businesses have bled into payment obligation delays of over 40-60 days.
To quell the damage and backstop the United States economy, in March, the Federal Reserve introduced support programs and cut interest rates to near-zero, returning it to a range of 0 to 0.25 percent. This high-risk, low-interest environment has created the perfect opportunity for invoice factoring.
Invoice finance firms have been quick to the scene, rolling out COVID-centric invoice factoring solutions. Optimum Finance, a UK based fintech invoice discounting and factoring solutions firm, has spearheaded this movement. Optimum Finance is not only launching a support package for UK SMEs affected by the coronavirus, but also applies AI to identify SMEs in need of invoice finance.
But AI prediction is not the only technological advancement that the industry has seen. As a market that was dreamt up to avoid monotonous, manual inquiries and accelerate cash flow, invoice factoring is the ideal use case for blockchain technology. On a decentralized, distributed ledger, an automated factoring process facilitates immediate transitions, enhances trust, and promotes transparency across the whole discounting process. Governed by a smart contract, blockchain-backed invoice factoring provides faster, more resilient, low-risk services while preventing double-spending.
Today’s current economic environment showcases invoice factoring as a lucrative investment. But Intain believes that the potential for innovation doesn’t stop here. Rather, the future of invoice factoring lies in tokenisation through an asset value blockchain. By unitising invoice assets, tockenisation has the ability to heighten liquidity and enable even more decentralisation, making the investment opportunity more secure.
However, the invoice factoring firms that have adopted tockenisation are few and far between. Moreover, they do not have the necessary information rails for investors to see the value of underlying invoice assets. With no NAV, unlike mutual funds or traded stocks, monitoring token asset growth remains opaque. That is why Intain’s Asset Value Blockchain (AVB) has sought to solve the Achille’s heel of tokenisation by providing real-time asset-value insights to token holders.
Given the increasing demand for invoice factoring today, it is clear that this market will continue to grow and innovate. However, the time-old question remains: are we ready to harness these solutions?