“Understanding your environment is of course essential for doing business. The environment that factors work in has always been fairly dynamic. However the crisis has taken this to new levels.  This conference is about understanding the opportunities in the post crisis environment – the opportunities of the new normal.

What is the new normal?

“The ‘new normal’ is a phrase coined by William Gross, who is the founder of the global investment management firm Pimco, to describe the post-crisis environment of slow growth, unemployement and inflation.

“But for the factoring industry, the new normal could easily stand for high growth, new markets and record profits.  That’s a new normal that I think you could all get used to and many of you have already seen the start of this.  I believe that this is only the beginning of what could be really good times for factors.

Why is that?

“For factors, the new normal may be quite different to that of traditional bank lenders. Growth out of recession will put new demands on recession-weakened balance sheets as companies try to restock to meet new orders. Larger corporates are increasingly interested in invoice finance structures as cash-flow becomes a central focus of many treasury operations. According to a recent report by the Hacket group, freeing up unnecessary working capital is the cheapest form of financing – all in all, there is now a much bigger focus on working capital and cash flow. 

“The business world is beginning to see the strength of the receivable. And it’s not just SMEs, it’s also large corporates, sometimes very large.  The crisis has projected the receivable into the spotlight more than ever before. Banks, financial institutions and corporates of all sizes are beginning to understand that receivables is an asset you can count on much more than other assets. Its short-term, self-liquidating nature means that much of the uncertainty of advancing against other assets is absent. 

“This means there are vast opportunities looming on the horizon for receivables financiers – only around 5% of trade receivables are currently financed in Europe; but according to Igor Zax, the author of a report by the London Business School, the potential could be five times that figure. Factors with their in-depth knowledge of receivables are in a unique position to take advantage of these new opportunities.

Where will we see the growth?

“Events of the crisis are accelerating and driving a growing trend towards greater efficiency in the utilisation of excess working capital.  There are three ways in which we will see this happening, 1. the increasing use of traditional methods of factoring, 2. growth in supply chain finance, and 3. the increasing use of Receivables Exchange type operations. And what will oil the wheels of this process even further is the move towards document standardisation and document digitisation through the harnessing of technology to create fast information flows; and also the greater utilisation of credit insurance to make receivables funding propositions more attractive. 

“This all points towards a significant and, in my view, inevitable commoditisation of receivables. This might not be what everyone wants to hear.  And it may not happen this year, it may not happen next year, but it will happen.  These are the processes of the new normal. The new normal created in the fallout of the crises that have changed the way the business of commercial finance is being done.  But commoditisation will not be comprehensive; there will still be a need for traditional factoring – it will be very hard to beat the strength of advancing against a ledger with a wide spread of relatively high risk debtors.

“The really big question is what are factors going to do about getting some of this new business?  Because if the factors don’t get it, someone else will – interest is growing fast.

“Jack Welsh, ex-CEO of General Electric, said ‘control your own destiny or someone else will’. I think there is a lot of truth in that statement for this industry.

The Challenge

“Factors should be able to exploit this growth – they have a head start; they understand the receivable better than anyone else.

“I believe this is the challenge for today’s forward thinking factors – how to exploit the changes that are happening, how to take advantage of the huge increase in receivables financing that the business world is heading towards. That means learning about the new methods of freeing up cash tied up in working capital, targeting new market sectors and harnessing existing technologies in new ways.

“In the next two days we will be hearing from industry experts who have already started thinking about the new normal. We’ll hear about opportunities in new markets, how factors can use their receivables knowledge to get involved in new securitisation deals, why leaders need fresh vision, how social networking is making huge inroads into business marketing strategies, where and why new markets are opening up and why receivables finance is firmly on the radar of large and very large corporates. We’ll hear all this and more. 

“This is all part of the new normal and for factors to profit from it they must understand it. What is required is some different thinking, some thinking which is beyond that of traditional factoring; what is needed is some new normal thinking. And that’s what we’ll do today and tomorrow.”

Image copyright: Flickr 

At the end of last year the Chief Executive of CIPS, David Noble, said: “The start of 2011 is likely to be ‘all systems go’ for UK manufacturing. The accelerated growth of new orders in export markets and recent record rates of interest in manufacturing jobs are a positive end to the year. They also bode well for the continuation of the manufacturing-led economic recovery in 2011.”

This is a view shared by the British Chambers of Commerce (BCC): “The manufacturing sector is growing strongly and is a star performer”, said BCC Director General, David Frost.

The recovery the manufacturing sector is experiencing is export-led. British Exporters are benefiting from the relatively low value of the pound and emerging economies outside of Europe. Coface are well positioned to support businesses who are looking to take advantage of this with a range of services including recourse and non-recourse invoice discounting. One of our key advantages is that we support export business worldwide in the same way we support domestic business. This pricing symmetry offers distinct competitive advantage to businesses selling abroad. What is more, we can fund anywhere in the world where we offer credit insurance – currently that is in nearly 100 countries.

If you have clients who are looking to expand overseas and could benefit from having Coface as a business partner, they would be happy to discuss this with you. They would also be happy to discuss any domestic funding requirements your clients may have.

For more information on our receivables finance and latest deals please visit their website.

A Coface analysis per sector and country is also available on their website.

Image copyright: Flickr

Almost 70 per cent of delegates polled at the Conference said their businesses were witnessing a recovery in trade compared with just 13 per cent that had seen no sign of an upturn.

The delegates painted a picture of the domestic and global economy being at a crossroads on the road to recovery.

While in excess of 24 per cent said demand in export markets had not reduced over the past 12 months, more than 23 per cent said it had – depending on which economic and geographic regions they were trading with.

In terms of the domestic economy, more than 46 per cent said demand for their products and services had not dropped over the year but 39 per cent said they had endured a fall in demand.

Delegates remained unsure about the Lib-Con coalition Government ahead of tax rises and public sector spending cuts in the emergency Budget on 22nd June. Almost 42 per cent thought the new administration would be positive for the UK business climate but almost 40 per cent remained undecided.

The poll produced evidence of businesses undertaking a cautionary stance to protect themselves against potentially damaging effects of the downturn – more than 58 per cent have strengthened their credit management in the past 12 months.

The conference at the Palace Hotel in Manchester was addressed by Dr Mohamed Djeddour, Head of International Business Programmes at Manchester Business School, who spoke on The UK Economy – exhaustion of the old model and prospects for a new growth path.

Other economists to speak were Juan Gomez, Head of Economic Strategy at Manchester’s Commission for the New Economy and Christine Altuzarra, an analyst in the Economic Studies and Country Risk Department of Coface in Paris, where she is primarily in charge of industrialised countries and sectors.

Christine Altuzarra said the worldwide economic crisis had been the worst and deepest since the first oil crisis of the mid-1970s and that cycle durations tend to be narrower and narrower.

She said growth had returned globally in 2010 with emerging economies outstripping that of industrialised nations and that nations in the eurozone are likely to endure a more painful and slower recovery than others outside the zone – highlighted by the crisis gripping Greece and concerns about the economies of Spain and Portugal.

Ms Altuzarra believes the UK will see growth of 1.3 per cent in 2010 -  as France – compared to her forecasts of 1.5 per cent for Germany and nearly 3 per cent for the United States.

Mr Gomez, whose speech was entitled ‘The North West Economy: Growth with Confidence?’ said the worst effects of the recession had passed and that the North West was set for a modest rate of growth.

Philip King, chief executive of the Institute of Credit Management (ICM), delivered a speech on ‘Out of Recession: Risk & Response’.

His speech supported the findings of the poll by showing how companies were beginning to benefit from an improvement in business as the nation emerged from recession.

It was the first time that Coface, a leading provider of country, sector and business climate ratings and a world leader in credit management services, had staged the conference outside of London.

Xavier Denecker, the managing director of Coface – UK & Ireland, acted as conference moderator and told delegates that Coface selected Manchester because it was home to the industrial revolution and had transformed itself into “one of the most important cities in the UK and has been able to reinvent itself into a dynamic metropolis, with an extensive presence from the service, finance and media sectors.”

The conference was attended by over 200 finance directors and credit management professionals, their advisers and those with an interest in country risk.

Contributed by Coface