Receivables Finance in 2021

What's the forecast for Receivables Finance in 2021?

 

Back in July, I wrote about the impact of Covid-19 on Receivables Finance. One of the insights mentioned was regarding the positive correlation between GDP and receivables finance, and we all know what direction GDP has been going. The impact of the pandemic had been deeper and wider than anticipated, and most businesses were bracing for impact.
But what’s the forecast for 2021? Surely, with the vaccine and all, everything will improve, right? Well, our own Kevin Day recently published an article in BCR precisely about this, which I’m sharing below:

“Generally, there is a mix of pessimism and optimism in the market. There are worries about businesses that are being propped up by government measures and support packages. As this support rescinds, there will be businesses that will struggle to survive, which will be bad news for lenders from both a bad debt and fraud perspective. There are a number of insolvency and collect-out firms recruiting staff to ensure they have the capacity to deal with the high number of business failures.

The economic effects of the pandemic have not been uniform across the globe, with countries like China having only a small contraction in GDP, whereas others have had significant GDP contraction. Some countries have suffered multiple ad-verse events. For example, Lebanon has political unrest, hyperinflation, a catastrophic explosion and the pandemic to deal with. The UK’s self-inflicted Brexit is also a badly timed problem for many businesses in the EU and UK already struggling due to COVID-19. High unemployment in many countries will lead to poverty unless economies can recover quickly – a so called “bounce back”.

Optimists see many opportunities. Vaccines are becoming available. A new US president could re-verse some of the protectionism we have seen of late. Businesses have become more digital – because they had to – but this can only be beneficial going forward. We’ve also seen many companies being forced to become first-time borrowers; will this lead to growth potential businesses being bolder about seeking finance in the future?

We have had some very exciting conversations with banks and independent funders about their plans for 2021. There is a keen focus on technology, improving the customer experience, reducing friction, becoming more cost effective and having better agility. There is a general feeling of funders getting geared up and ready for a growth in the sector and a number of new entrants waiting in the wings. With businesses emerging from the devastation of 2020, we can foresee the receivables finance being one of the catalysts to aid recovery and for future growth.”

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As I wrote at the beginning of this article, there is a positive correlation between GDP and receivables finance. Therefore, in order to better foresee the health of receivables finance, one has to foresee the performance of our economies, GDP in particular. So, what are economists predicting for 2021?

The main general prediction widely agreed upon is that although COVID-19 will remain with us, vaccines and antibody treatments will be widely available to large populations by mid-2021, facilitating a transition to the post-pandemic economy. The global economy will enter 2021 at a subdued growth rate and accelerate in the second half. After a 4.2% deflation in 2020, global GDP is forecast to grow around 5% in 2021. Although some forecasts are more bullish; for example, Morgan Stanley predicts a 6.4% growth.

In the IFA’s (International Factoring Association) December newsletter, The Commercial Factor, several US factors are interviewed about their 2021 predictions and challenges for the factoring sector. Even though there is a mix of optimism and pessimism, the general view is more positive than negative, with predictions of a slow recovery this year. Another interesting prediction made by these factors is that banks will be re-evaluating their portfolios, eager to ditch under– and non-performing loans. This will be a good opportunity for factors to pick up some of the business from banks.

Let’s hope that 2021 is the year when Corona is just a beer, Donald is only a duck, tiers sit on cakes, and bubbles exist only in Champagne.

 

Article written by: 

Market Research Analyst, HPD Lendscape