Q&A: Factoring Forward: Insights and Strategies for Success in 2025

Contributors:

Lori Gustaf, SVP, Director of Transportation Factoring, FirstLine Funding Group

Kim Fisk, COO, Factoring Division Triumph

Neely Campbell Thomas, Director, Love’s Financial Services

Tina Capobianco, Senior Vice President, J D Factors Corporation

Alan Eliasof, CEO, Prestige Capital Finance, LLC

Glendon Paulk, COO, Diversified Lenders, Inc.

Kevin Laborde, President, Cash Flow Resources, LLC

The factoring industry is undergoing continuous transformation, driven by economic shifts, technological advancements, and emerging opportunities. As we reflect on 2024 and look ahead to 2025, understanding these changes is essential for businesses navigating this dynamic landscape. In this feature article, we’ve tapped into the expertise of IFA’s Advisory Board Members Lori Gustaf, Kim Fisk, Neely Campbell-Thomas, Tina Capobianco, Alan Eliasof, Glendon Paulk, and Kevin Laborde.

These industry leaders offer valuable perspectives on the key trends, challenges, and opportunities shaping the factoring industry. Together, they explore the forces that defined 2024 and share strategies for success in the year ahead. Discover their insights as we tackle some of the most pressing questions shaping the future of factoring.

Q: What challenges or risks do you anticipate the industry will face in 2025, and what strategies should companies adopt to navigate them?

Tina: 2025 will still present some difficult credit issues with account debtors and clients.  2024 started to show some cracks in debtor credit and insolvencies.  We will continue to see those issues, and this will cause challenges when approving credit for potential clients and account debtors. We will need to be more conservative when looking at credit and be careful with overextending.

Alan: I believe the greatest challenge and risk is fraud resulting in significant write-offs. There is a large amount of spam and email hacking that is causing factors to perform improper verifications, send wires to the wrong party, and process fraudulent invoices. Factors must always be on high alert. Second, the independent verification of invoices and change of wire instructions is even more relevant now.

Glendon: With Increased competition, whether from existing factoring companies or those new to the industry, we should all be mindful of taking on undue risk in the underwriting process (client onboarding and ongoing). Reaching on deals that compromise a factor’s due diligence and monitoring practices seem to cause a domino effect in many ways, including our client’s expectations. It has been our experience that many times, if a factor makes an exception for funding, the client often times views that exception as the new normal. We view this as a problem for both you as the existing factor or any factor that may pick up that deal at a later date.

Kevin: While there is a new administration in DC, the continued competition from the SBA with their small business loan products is a source of frustration. It will be interesting to see if that remains the case. Regardless, factors need to find their niche where they can add value beyond the liquidity they provide.

Q: What do you think was the biggest challenge the factoring industry faced last year, and how well do you think the industry responded?

Kim: Aside from the significant rise in fraud, one of the biggest challenges the transportation factoring industry faced in 2024 was navigating the financial struggles of our clients. Many trucking companies faced increased operating costs, fluctuating freight rates, and cash flow shortages, which placed immense pressure on their businesses. This stress often translated into heightened emotions and strained interactions, making it difficult to maintain positive relationships.

Another challenge was keeping our team members motivated amidst this environment. The stress and frustrations of our clients sometimes affected our team, requiring us to prioritize internal morale and maintain a supportive workplace culture.

To address these challenges, we focused on clear communication, empathy, and creative solutions for our clients, while providing resources and recognition to our employees. Balancing these priorities was no small task, but it reinforced the importance of adaptability and resilience in serving our clients effectively and sustaining team cohesion.

Tina: The factoring industry faced challenges with pricing models in 2024.  With interest rates as high as they got, it became difficult to remain competitive with our pricing and still produce yields that made sense for the company.  We had to get creative and offer other value-added services to our clients, so they felt they were getting value for what they were paying.  J D Factors maintained most pricing models and did not increase rates to our clients.  With interest rates starting to decrease, it will be interesting to see how the market adjusts.

Alan: MCA’s were one of the biggest challenges. Although legislation may hurt their existence, it has injured ours as well, and they are not gone from our radar. It prevents factors from closing some transactions, but it also weakens existing clients that may not survive due to the additional debt load.

Kevin: Higher cost of capital definitely impacted factors and their clients while some clients also tended to not take all cost increases into account when pricing new work etc., because they were afraid they would lose new business opportunities. Lower margins are not sustainable on both sides.

Q: As we move into 2025, what emerging opportunities do you see for the factoring industry, and how can businesses prepare to take advantage of them?

Kim: Emerging in 2025, one of the most promising opportunities for the factoring industry lies in leveraging advancements in technology to streamline operations and enhance fraud prevention. Artificial intelligence and machine learning tools are becoming increasingly sophisticated, offering new ways to analyze data, predict risks, and identify fraudulent activity in real-time. Factoring companies that invest in these technologies can not only reduce losses but also improve efficiency and client trust.

Additionally, the continued growth of e-commerce and last-mile delivery presents opportunities to expand services to smaller, independent trucking businesses that are increasingly vital to the supply chain. By offering tailored solutions such as faster funding, more flexible terms, and digital platforms for seamless transactions, factoring companies can attract and retain a broader client base.

The industry can also capitalize on partnerships with fintech firms to innovate and stay ahead in this evolving market, ensuring sustainable growth and competitive advantage.

Tina: The economy is still experiencing a downturn, and companies are struggling to make profits.  We will see more and more banks release clients and force them to find alternative forms of financing.  That presents a tremendous opportunity for factoring companies.  Since we rely heavily on the accounts receivable of the business, we will be a smart alternative for businesses. We will also offer banks a reliable solution for referring deals they can no longer support.

Glendon: The Factoring industry needs to continue to distance itself and go on the offensive in regard to the MCA industry from a product offering and political perspective. If the factoring industry can continue to develop sound funding strategies that are designed to facilitate client success, it should limit the need for MCA’s.

Kevin: Factors will likely see lower or stable interest rates in 2025. From a planning perspective this will aid factors and clients alike. Advances in technology may come into focus this year with more adopters of those solutions.

Q: Looking back at 2024, what were the most significant trends or developments in the factoring industry, and how did they impact businesses?

Lori: Increased volume of identity theft in factoring applications and compromised email addresses/identity theft of account debtors in the transportation space was the highest volume I have ever seen in more than two decades.  At my office alone, we had nearly one hundred declined applications due to fake records presented in the application process and more than three hundred debtors were found to have compromised identities related to one or more loads given to carriers.  When our client would present the invoice(s) for funding, they may be declined due to old, fake, or stolen information on rate sheets.  This was a huge impact for our already struggling clients who now may not receive funding on short notice.  We pivoted by increasing the level of over advances to carriers in need of cash to cover immediate expenses for fuel, insurance and payroll.

Neely: I believe the biggest challenge we faced in the transportation factoring space was combatting the rise of fraud. It's been a relentless battle, but our industry has shown remarkable resilience and adaptability. At Love’s Financial, we took significant steps to protect our business and customers by adding new service providers, revamping our underwriting and credit procedures, and increasing our invoice verification percentages. The International Factoring Association (IFA) played a crucial role in this effort. The association’s quick response in organizing in-depth seminars featuring industry experts and law enforcement was impressive. The information-sharing among factoring companies has been commendable and crucial in addressing this challenge.

Tina: 2024 was a transformative year for J D Factors as we acquired three factoring portfolios within four months.  One was a partial portfolio of accounts from a competitor who wanted to exit a certain type of client, one was a portfolio of a factor who was in CCAA, and another was a portfolio of a factor who was exiting the industry all together. The Canadian factoring industry has undergone consolidation, resulting in a reduced number of factoring companies across the country. Canada does not have the abundance of factoring companies like the United States, so when mergers happen, it changes the industry significantly.

Kevin: Government funded projects were definitely evident in the marketplace driving opportunities, though contractors appeared much more brazen dictating terms and conditions regardless of executed documentation with their subs. Regulatory overreach remains an issue and more pressing on factors each year. Competing with the federal government is tough for factors large and small.

Kim: In 2024, the most significant trends and development in factoring was the alarming rise in fraud, particularly within industries like trucking. Bad actors became increasingly sophisticated, exploiting weaknesses to steal the identities of truckers and their debtors. This created widespread disruption and financial losses for many businesses. However, advancements in verification technologies have emerged as a critical countermeasure.

One notable example is the use of “liveness” verification tools to authenticate individuals in real-time. This approach proved highly effective for our company, as we implemented likeness checks to confirm identities. After experiencing just one fraud attempt, we adopted this technology and successfully extinguished all future fraudulent incidents. This highlights the importance of proactive measures and innovative solutions in combating the evolving threats of fraud in factoring. The industry’s ability to adapt to these challenges will define its resilience and trustworthiness in the years to come.

 Q: If you could share one piece of advice for factoring companies looking to thrive in 2025, what would it be?

Lori: Identity theft is not going away any time soon and the bad actors are learning more way to be better at their methods, so increased due diligence at the underwriting level comparing operator licenses to the state in which they originate, using Adobe products to spot changes made on documents, and asking more questions is more important than ever.  Educate your transportation clients to Google the domain for debtors or calling the number from the website to verify the load is legitimate before accepting or picking up.  Take advantage of all IFA webinars.  There have been many sessions with tips on spotting fraud at the underwriting and invoice verification level.  Most IFA webinars are free with membership so there is no reason not to join!

Neely: Looking ahead to 2025, my biggest piece of advice for factoring companies is to focus intently on becoming a valued partner to their clients. The key to long-term success is all about providing exceptional customer service, especially during challenging times. When the market rebounds, companies that have prioritized customer experience will find their clients can't imagine doing business without their partnership. Building and maintaining strong client relationships will be essential for success in the coming year. 

Tina: One piece of advice I would give is know your client, know their business and if you see drastic changes in their behavior or changes in their patterns, be weary and ask a lot of questions.  You must be aware and involved. This will help to guide them through difficult times and hopefully be proactive against difficulties.

Alan: Be very diligent on new prospects. Properly vet the principals and agreements between clients and debtors. Do Google searches on the client and principals as well as thorough background reports on principals. The fraudsters are very good at providing information. Your job is to distinguish fact from fiction.

Glendon: Vigilance is key. If we continue to experience elevated levels of inflation, short-term rates stay at current levels and long-term rates continue to rise, account debtors could experience increased pressure from external sources such as banks, equity markets, etc. This can lead to clients being stretched for payments and increased pressure for funding. Staying on top of debtor credit scores as well as client agings, AR turn, etc. is crucial for long term success.

Kevin: Understand that while there are technological solutions coming online more and more, addressing the basics of the industry (debtor evaluation, invoice verification, etc.) and consistently adhering to best practices will serve you better over the long hall. Process innovation and product diversification is great but you must ensure you have the expertise to properly execute. Lastly, fraud is a reality that will always be there. Ignore it at your own peril.