Navigating Risk and Economic Trends for the Remainder of 2025 and into 2026

Written by: Tom Ingrassia, Chief Risk Officer, CapFlow Funding Group

As we move through the final days of 2025, the economic landscape continues to evolve in ways that test the resilience and adaptability of factoring companies. Between rising interest rates, persistent inflationary pressures, and the lingering effects of a prolonged government shutdown, small and mid-sized businesses are operating in an increasingly complex environment. For those of us in the factoring industry, understanding these dynamics and adjusting risk management strategies accordingly will be key to maintaining healthy portfolios and supporting client stability into 2026.

Factoring in a Rising-Interest Environment

Higher interest rates have reshaped client behavior across all funding solutions. For many small businesses, increased borrowing costs have tightened cash flow, leading to delayed payments, slower inventory turnover, and greater reliance on alternative financing options like factoring.

At the same time, the higher-rate environment affects factoring companies’ own cost of capital and margin compression. Underwriting discipline becomes paramount; maintaining profitability means striking the right balance, pricing competitively for clients while ensuring the risk-adjusted return justifies the exposure.

Strategies to mitigate risk include:

• Reassessing advance rates to reflect updated collateral valuations.

• Implementing shorter invoice aging thresholds and more frequent portfolio reviews.

• Prioritizing sectors with steady demand and strong payment behavior, even if yields are lower.

By tightening credit oversight without restricting opportunity, factoring companies can remain a stable funding source when traditional lending slows.

Managing Client Risk Across Industries

Not all industries feel economic pressure equally. We’ve seen notable variation across sectors; manufacturing and logistics have remained resilient, while retail and certain consumer-facing businesses continue to face margin compression.

Understanding sector-specific cycles is critical. For example:

• Construction and manufacturing clients often face supply chain and labor cost volatility but generally have more predictable payment patterns.

• Transportation and logistics businesses may experience temporary strain during fuel cost fluctuations but are often quick to rebound.

• Retail and consumer goods remain more exposed to interest rate and spending shifts.

• Payroll and staffing clients face increased exposure due to slower paying account debtors, necessitating increasing amounts of credit to maintain operations.

• Government service providers face immense uncertainty with government shutdowns and need alternative funding solutions to source liquidity in the interim.

A sound risk management approach means adapting terms by industry, adjusting advance rates, concentrations, or personal guarantees depending on the volatility of the client’s business sector.

Economic Shifts & Invoice Financing Strategies

This year’s economic story is one of mixed signals. Inflation has moderated but remains sticky in key categories, while the recent government shutdown added new layers of uncertainty for small businesses that depend on federal contracts, regulatory agencies, or consumer confidence.

For example, small contractors awaiting federal reimbursements or regulatory approvals saw payment delays, creating temporary cash flow crunches. Factoring has become a lifeline for many of these businesses, helping them bridge gaps until operations normalize. However, from a risk perspective, factoring companies must recognize that a prolonged government shutdown can extend payment cycles and raise default probabilities within affected industries.

Proactive measures include:

• Monitoring portfolio exposure to government-linked clients and adjusting credit limits accordingly.

• Building communication channels to anticipate payment delays early.

• Maintaining liquidity reserves to absorb temporary disruptions in client payment flow.

By staying ahead of these trends, factoring firms can protect both their clients and their portfolios during times of government and economic instability.

The CRO’s Playbook: Risk Management in Factoring

From a Chief Risk Officer’s perspective, the key to long-term stability lies in discipline, data, and diversification.

Factoring companies may want to prioritize:

• Robust credit evaluation using both traditional and alternative data to understand client and account debtor health beyond simple financial ratios.

• Early warning systems that flag changes in account debtor payment behavior or industry conditions before they become losses.

• Diversification across industries, geographies, and client sizes to avoid concentration risk.

The goal is to maintain flexibility. Economic cycles are inevitable, but a diversified, data-driven approach helps ensure that no single shock can disrupt the broader portfolio.

Preparing Factoring Companies for Economic Volatility

Looking ahead into 2026, factoring companies must prepare for continued economic volatility. Rate fluctuations, election-year uncertainty, and evolving regulatory pressures are all likely to shape business conditions.

Resilient firms will:

• Conduct financial stress testing to model the impact of delayed payments or rising costs.

• Invest in technology that enhances credit monitoring and operational efficiency.

• Engage in scenario planning to prepare for multiple economic outcomes rather than betting on a single one.

Factoring remains one of the most adaptive forms of finance, but adaptability requires foresight. By combining strong risk frameworks with an understanding of shifting economic forces, factoring companies can continue to provide stability to the businesses that depend on them.

Conclusion

The remainder of 2025 presents both challenges and opportunities. As economic conditions fluctuate, factoring firms play a vital role in supporting small and mid-sized businesses. By applying disciplined risk management, maintaining diversification, and staying attuned to the broader economic environment, including disruptions like the recent government shutdown, industry leaders can position themselves not just to endure volatility but to thrive and grow through it.

About Tom Ingrassia

Tom Ingrassia has been with CapFlow Funding Group since 2024, serving as Chief Risk Officer. Before joining CapFlow, Thomas spent over 15 years at Capstone Capital Group, LLC, where he was Vice President of Due Diligence and Underwriting, overseeing risk assessment and underwriting strategies. He also served as Corporate Finance Manager at Amincor, Inc., managing financial operations for nearly 14 years. Earlier in his career, Thomas worked in Prime Brokerage Operations at Goldman Sachs, gaining valuable experience in financial services. As Chief Risk Officer, Thomas is responsible for managing risk, ensuring compliance, and driving strategic financial decisions that support CapFlow’s continued growth. Thomas holds an MBA in Finance and Management from Fordham Gabelli School of Business, where he was a member of the Phi Kappa Phi Honors Society, and a B.S. in Mathematics from Syracuse University. 

The views expressed in the Commercial Factor website are those of the authors and do not necessarily represent the views of, and should not be attributed to, the International Factoring Association.