"All in all, crisis years are known to be good years for factoring" – FLF Finanzierung Leasing Factoring 01/2021
FLF: Reviewing 2020: Mr. Menke, to what extent has the corona crisis affected the industry?
Factoring has been doing very well so far and considerably better than expected. Despite the corona pandemic, factoring was not only able to strengthen the German economy with the necessary financing needs in the first half of 2020, but even increased. Despite the massive impact of the pandemic on national and international economies, sales volumes for the members of the German Factoring Association (Deutscher Factoring-Verband e. V.) increased from 132.8 billion euros to 134.9 billion euros. This corresponds to an increase of 1.6 percent compared with the same period in the first half of 2019
As in the financial crisis of 2009, the stabilizing function of factoring was demonstrated in the form of immediately available liquidity.
These figures are significant for the entire German factoring market. The members of the association service around 98 percent of the total association factoring volume in Germany. The figures also show that the measures taken by the German government, in cooperation with trade credit insurers, are bearing fruit, contributing to stability in the supply chains by maintaining financing through factoring.
FLF: In what specific way could the German Factoring Association and its members help factoring through the crisis?
We already sent our first statements on trade credit insurance to various ministries at the start of the first lockdown in March this year. We were faster than most and were able to position ourselves at the forefront of opinion-forming.
In addition, the "Act to Mitigate the Consequences of the Covid 19 Pandemic in Civil, Insolvency and Criminal Procedure Law" contained, among other things, a far-reaching moratorium on performance and payment obligations for consumers or microenterprises affected by the Covid 19 pandemic, which applied until mid-2020. (Only) those debtors were granted a moratorium in the form of a right to refuse performance for all performance and payment obligations for "material continuing obligations" that were entered into before March 8th, 2220. However, "material continuing obligations" are only those that are necessary to cover the provision of reasonable care, such as contracts for the supply of electricity and gas or water supply and disposal. The majority of factorable receivables were simply not affected at all, unlike other financial services. This is an important reason why our members were largely unaffected by corresponding deferral or non-payment requests. Here, too, we were very early and obviously successful.
We inform our members internally and exclusively on a regular basis in so-called "Corona Updates" about the latest developments in terms of the pandemic-related exceptional and crisis situation that may be relevant for the factoring industry. This also includes corona-related legislative measures and regulatory consequences, with a focus on impact at a national level but also with an eye to developments at an international level.
FLF: What opportunities does the crisis present for the factoring industry?
The association was perceived in a positive light, owing to its early and comprehensive activities, both in the media and by other associations, and also by potential new members. The association received more enquiries as a result. The networking and intensification of the exchange with other associations, especially and consciously an exchange with associations outside the financial sector, has led to the perception and importance of factoring as a means of financing small and medium-sized enterprises and as a means of maintaining international as well as national value chains, especially during the crisis. This will also have made other possible clients aware of the association's members as potential suppliers and service providers, which is a nice side success.
It was also pleasing to note that we were still present at certain ministries where we had not been active in recent years owing to a lack of acute issues; and in some cases we were able to re-enter into dialogue with the same contacts immediately. The opinion leadership of the German Factoring Association with a market coverage of around 98 percent of the factoring volume organized by the association was further strengthened.
FLF: How did you deal with the crisis in your association work?
The coronavirus crisis has of course created challenges for the member companies on the one hand and for the association's work on the other. Generally speaking, there was great uncertainty to start with, which among other things led to more enquiries and more workload at the office. Then there were the political and legal measures that had to be gone through at short notice, and steps required of the industry which had to be put in motion.
We had already "evacuated" our office in Berlin from the government district as a precaution in the 12th calendar week, i.e. from March 16, 2020, and have been working decentrally since then. The advantage here was that in 2019, because of office conversion measures, external solutions had already been put into place long before corona, making it possible to readjust without any further technical expansion or upgrading.
As a result of this, we didn't have to quickly restructure our digitilization. The entire staff had already been equipped with mobile technology beforehand. This back-up system has proven itself to this day and is currently being expanded and strengthened, also for times after corona. This meant that many employees at first didn't even notice that the office was no longer occupied, in the traditional sense of the word.
Regrettably, the General Meeting planned for May had to be canceled physically, but following the provisions of the pandemic legislation, it took place in the form of a written circulation procedure, which included elections. There are also seminars and colloquia - the latter, as usual, exclusively for association members - held online. We are still planning a physical General Meeting for 2021, but we are also prepared to operate again in 2021 with a written procedure, based on the extended regulations of the Pandemic Act for Associations.
On the whole, we were able to record positive effects of the pandemic in the association: The elimination of business trips was in some cases even seen as a relief. Even after corona, there is likely to be a permanent shift from classic face-to-face events in the direction of online meetings.
FLF: What themes have you particularly advocated in your collaboration with political decision makers?
There was and is a lot here: In addition to the non-affected areas moratorium previously mentioned, we had already advocated in mid-March 2020 that the supply of liquidity in supply chains be ensured through state insurance for trade credit insurances (WKV). Fortunately, this culminated in the agreement on the so-called WKV protective shield, to the amount of 30 billion euros, between the federal government and the credit insurers in mid-April. This enabled credit insurers to continue to provide their customers with limits of around 400 billion euros, which ultimately had a positive effect on factoring sales in the first half of the year as well. The protective shield is currently limited to the end of 2020, but we are advocating a prolongation and are already seeing the first cautious but positive signs in that direction.
In the area of insolvency law too, the state has taken various measures to cushion the economic effects of the corona crisis; above all, the temporary suspension of the obligation to file for insolvency for those companies that, among other things, deal with the the protection of providers of “fresh money“ from subsequent challenges under insolvency law. We have advocated a wide interpretation of this group of providers, so that new liquidity made available via factoring can beneﬁit from such protection.
In 2020, our association of course continued to deal with legislative projects and political issues existing independently of the corona crisis. In addition to various developments at EU and national level, for example in the area of money laundering prevention and risk management, the implementation of the EU restructuring guideline announced in mid-2019 with the legislation for the Legal Restructuring Development Act (SanInsFoG) is now in the decisive phase. Our association advocates certain factoring-speciﬁc clarifications pertaining to measures associated with the new restructuring process. This serves to create a better balance between creditor and debtor interests and to ensure that factoring remains a relevant and sensible option for all parties involved, even in times of business crisis, restructuring and reorganization. This topic will certainly continue to occupy us for some time to come.
FLF: The outlook for 2021: What do you expect in the coming year?
We will first wait for the total annual figures. It remains to be seen whether the unexpectedly good figures from the first half of 2020 continue. The developments in the market seem to have been very varied: While many had industry-related slumps, for example in the automotive sector, others delivered their best-ever results and showed disproportionate growth. This gap was wider than in normal years. Overall, crisis years are known to be good years for factoring. There was also a slump in 2009, but afterwards (2010) sales increased again significantly, by over 37 percent.
The consolidation of factoring providers will continue nevertheless, as was also shown in 2020: At the beginning of the year there were still 184 providers registered at the Federal Financial Supervisory Authority. Now there are only 180. Factoring as a modern financing instrument is set to consolidate its position and extend its market role still further.
By contrast, an economic survey carried out in the spring showed more gloomy results. Another survey in the summer showed a somewhat brighter picture on the part of the members, albeit the effects of the pandemic can still be seen and, of course, it should be noted that this survey was carried out well before the current second lockdown. In the summer, around 28 percent of the members, almost unchanged when asked in April 2020, foresaw “good” or better prospects for the current year; a gratifying near to 28 percent saw saitisfactory prospects (up eight percent) and over 39 percent (almost unchanged) only foresaw “sufficient” tendencies. It is encouraging that just a four percent (as against nearly 13 percent in April) foresaw “poor” or even “insufficient“ prospects for the summer.
FLF: Is the industry well prepared for next year?
Factoring companies are ﬂexible, if only because - unlike other financial services - they only have very short collection times, of currently around 40.7 days (Annual Report of the German Factoring Association 2019). You can therefore adapt your portfolio much faster, if necessary restructuring when crises such as the corona pandemic arise. You can manage your credit balances more precisely, even in a crisis, which is precisely the advantage over traditional bank ﬁnancing. How factoring further develops will largely depend on whether the previous WKV protective shield period can be extended seamlessly into 2021 and what the economic outlook will be when the protective shield is lifted, probably on June 30, 2021.
Another theme is going to accompany factoring beyond 2021, as it will the entire economy. This is the “bow wave” of potentially insolvent so called “zombie companies“, companies kept alive by the state, companies whose balance sheet figures, in part due to the corona crisis, have deteriorated massively. Despite that, we are cautiously hopeful that the factoring industry as a whole will emerge from the crisis strengthened, as it did in 2009/2010. This carries the proviso of course that no legal regulatory collateral damage for the industry as a whole will arise out of some negative publicity which health factoring has been getting.
has been a member of the Board of Management for many years and since 2019 spokesman of the Board of Management of Deutscher Factoring-Verband e. V., Berlin. He has been Managing Director of PB Factoring GmbH in Bonn since 2002.