Etymologically derived from the Latin word factor, meaning “manufacturer, creator”, and from facere, the verb “to do”, factoring means “to do on someone’s behalf”. As with its linguistic origins, we need to go back a few centuries, to the time of the Roman Empire, to find the first traces of factoring. As Rome was one of the first empires, merchants engaged in long-distance trade relied on factoring to finance their expeditions. Over the years, various empires, such as England’s East India Company, adopted this financial technique to combat local weather and economic conditions and prevent potential food crises. <\/p>\n
As the centuries passed, factoring arrived in France in the middle of the transitional period between the Middle Ages and the Renaissance. We have to go back to Jacques C\u0153ur (1395\/1400-1456), the precursor of this financial solution to the expansion of France by promoting trade with both Italy and the Orient. It was in the Orient in particular that the French merchant and banker relied on his network of factors to sell goods on behalf of producers. <\/p>\n
International trade shipments were made possible by factors that facilitated the development of merchandise sales missions (generally from producers).<\/p>\n
B) The turn of the 60′ & 70′ :<\/strong><\/p>\n In the centuries between the arrival of factoring in France during the Renaissance and the financial solution as defined today, transatlantic relations between England and the United States fostered the introduction of the term “factoring”. The business grew rapidly in the United States, but the Trente Glorieuses in France, the Wirtschaftswunder in West Germany (FRG) and Austria, and the Miracolo economico in Italy intrigued American factors. In 1961, the First National Bank of Boston set up in Europe in England, followed by the holding company International Factors AG in Switzerland. Subsequently, Italy, France and Belgium created their first national factoring players between 1963 and 1965. <\/p>\n Following massive investment by American factors and the creation of European factors, the market potential became increasingly clear in the 1970s. In other words, factoring gave banks the ability to : <\/p>\n Finally, it was through a regulatory and linguistic framework that the factoring business was officially launched in France in the 1970s. First of all, the decree of November 29, 1973 introduced the term “factoring” into the French language. The Dailly Act of 1981 provided a legal framework for factoring operations, while the Banking Act of January 24, 1984 “enabled French credit institutions to adapt their operating conditions to an open, competitive environment”. <\/p>\n Subsequently, the 1980s were characterized by strong market growth and massive investment by Europe’s leading banking institutions to develop factoring subsidiaries. This growth rapidly led to an over-representation of banking subsidiaries in France. Moreover, by 2005, France had moved up to third place in Europe, with 81.6 billion euros of receivables purchased, and to fourth place internationally. Internationally, however, Europe became the second-largest international factoring market and has maintained its excellent position ever since, while France became the leading factoring player in Europe (420 billion euros of factored receivables in 2024) and second internationally behind China in 2024 (634.6 billion euros of factored receivables in 2020). <\/p>\n This historical and evolutionary reminder serves as an introduction to the concept of factoring. In other words, factoring “enables a company to strengthen its cash position by transferring invoices awaiting payment to a company called a factor”. <\/p>\n <\/p>\n A) How factoring works :<\/strong><\/p>\n From the customer’s point of view, the main objective is to improve cash flow by obtaining an immediate advance on invoices issued but not yet paid by end customers. In practical terms, the company sends its invoices to the factor, who checks them and generally releases 80 to 90% of their value within 24 to 48 hours. This mechanism enables the company to finance its working capital requirements (WCR), thus avoiding the tensions associated with sometimes lengthy payment terms. <\/p>\n From the factor’s point of view, factoring combines financing, receivables management and risk management. The factor acquires receivables in exchange for an advance, but keeps a close eye on their quality to limit the risk of non-payment. Before accepting a receivable, it assesses the creditworthiness of end-customers, and may refuse those deemed too risky. In return for his services, he charges fees, including a management commission and, if applicable, interest on advances paid. When the end customer settles the invoice, the factor pays the remaining balance to the company, after deduction of its fees. Where factoring includes a guarantee against non-payment, the factor assumes the financial risk if the end customer defaults, reinforcing its role as a strategic partner for companies. <\/p>\n B) The main forms of factoring :<\/strong><\/p>\n Factoring is not a simple financial product without derivatives. On the contrary, there are many different types of factoring, each tailored to specific needs. Notwithstanding, the main types include : <\/p>\n The key point is that factoring is a three-way relationship between the customer, the factor and <\/span>the debtor customer<\/span> where the notion of recourse often plays a crucial role at the time of contractualization, due to the risks generated by the non-solvency of certain debtor customers.<\/span><\/span> <\/span><\/p>\n Earlier in this article, it was mentioned that the non-solvency of debtor customers is a crucial factor for the factor to consider. On the prospect’s side, however, the major factor to consider (in addition to his cash flow situation) is the interest rate charged by the factor. <\/p>\n A) Banque de France projections :<\/strong><\/p>\n In fact, to repeat the introductory words, the upward revision of ECB key rates immediately impacted the 3-month Euribor. As the benchmark for factors rose, interest rates soared. Despite the ECB’s intention to reduce its key rates (April 2024: 4.5% – November 2024: 3.4%), interest rates remain unfavorable to the factoring business. However, from a macro-economic point of view, this increase by the ECB ensures excessive inflation, impacting household purchasing power and creating economic tensions. On the other hand, the increase in key rates enables the ECB to prevent inflationary spirals and, consequently, to prevent economic agents from anticipating price rises. <\/p>\n So, to return to the case in point, ECB projections for 2025 point to a steady decline in key rates, likely to further boost factoring activity. So, despite a sharp downturn in activity since July 2023 and the increase in key rates by the ECB, customers are now considering alternative solutions, which is reflected in a 1.2% drop in the number of customers using factoring in France in 2023. To counter this decline in customer numbers since the health crisis, the main market players need to seize new market opportunities. <\/p>\n B) The oligopoly of banking subsidiaries :<\/strong><\/p>\n Today, the factoring market is made up of 17 players who are members of ASF (Association Fran\u00e7aise des Soci\u00e9t\u00e9s Financi\u00e8res). Among them, the top 5 factoring companies account for around 75% of market share (CA Leasing & Factoring, BNPP Factor, BPCE Factor, SG Factoring and Cr\u00e9dit Mutuel Factoring). In France, in 2023, the volume of invoiced receivables will be around 420 billion euros, with an average margin rate of 0.25%, according to ASF. <\/p>\n Representation of the French factor ecosystem in terms of market share (2024) :<\/p>\n But this market, monopolized by the main subsidiaries of banking institutions, is also being challenged by fintechs trying to carve out a place for themselves using a variety of competitive strategies.<\/p>\n C) The growing arrival of Fintechs :<\/strong><\/p>\n The emergence of fintechs since 2013 with the creation of EDEBEX (digital alternative to factoring) in Belgium, embodies the belief in a paradigm shift in the factoring market. However, the development of these fintechs is still very limited, due to a market strongly dominated by banking subsidiaries. Despite the positioning of the main factors on the market for multinationals and even ETIs, fintechs are positioning themselves on a market segment neglected by the main factors: VSEs\/SMEs. By positioning themselves in this way, the new entrants are opting for a dual strategy: avoiding the market leaders, but also positioning themselves on a blue ocean of concrete needs. <\/p>\n Some of these fintechs, such as Defacto and Edebex, have succeeded in consolidating their position thanks to their competitive advantages, by reducing response times, automating scoring, adding transparency and fluidity to their processes, and developing the securitization market. Other fintechs, such as Silvr, specialize in income-based financing. Finally, some fintechs, such as Tipalti, have decided to turn their market segmentation into their competitive advantage, by providing their customers with a Saas equipped with Dashboards and very precise customer tracking. <\/p>\n D) Barriers to entry :<\/strong><\/p>\n However, it is becoming increasingly difficult for new competitors and fintechs to gain access to this market dominated by the banking monopoly. Indeed, this market is marked by strict regulations (the need to be authorized as a finance company or credit institution and specialized, due to the associated financial risks…), substantial capital (high financing amounts, capacity to buy back customer receivables, ability to withstand fluctuations in receivables…), risks directly associated with the business (fraudulent invoicing at the point of sale, etc.), and a high level of risk management.), risks directly associated with the business (such as fraudulent invoicing, as exemplified by the fintechs Urica (2018) and Smart tr\u00e9so (2021), for which the frauds led to court-ordered liquidations), an ultra-competitive market (the top 8 market players in France hold 97% of market share), the need for sufficiently developed technologies to cope with mass invoice processing, and access to information on corporate clients and debtor customers. <\/p>\n These barriers to entry encourage the oligopolistic concentration of factors originating from bank subsidiaries, and force fintechs to develop competitive advantages based on regulatory and technological developments…<\/p>\n The timid breakthrough of fintechs thus remains strongly correlated with an unequivocal banking monopoly. Nevertheless, fintechs remain an inflection point in the factoring market. Their presence has led to a shift in customer typologies, underlining the development of the small & middle market segment (factoring usage rate of around 3%, according to ASF). So, if fintechs are positioning themselves on this market with new technologies (SaaS, Marketplace, Artificial Intelligence…) and a constant search for competitive advantages, it becomes vital for the main market players to ride this wave of change. This quest for competitiveness includes regulatory changes (e.g. electronic invoicing), the development of advanced technologies (e.g. Artificial Intelligence) and the search for a competitive edge based on CSR financial products. <\/p>\n A) Electronic invoicing :<\/strong><\/p>\n However, by September 2026, the first major change will have taken place for French factors, as the Finance Act 2024 comes into force. This law will require large companies to issue electronic invoices (or e-invoices). In this hyperbole, this digital revolution shows that the arrival of electronic invoicing marks a major change for factors, and presents 3 major opportunities: democratization of factoring (desacralizing the factoring model for ETIs, SMEs and VSEs, with lower cash requirements and faster, standardized transmission of invoices), standardization of invoices (facilitating data and invoice processing, at the same time granting a shorter, more transparent response time) and a reduction in cases of fraud (standardization accompanied by a defined processing model facilitates invoice processing and reduces the risk of false invoice fraud). In other words, electronic invoicing ushers in a new era for factoring, whose intermediary role becomes more fluid, more digital and more transparent for customers and prospects. <\/p>\n B) Artificial intelligence :<\/strong><\/p>\n To respond to new market opportunities, fintechs are playing a key role in developing new solutions. This is particularly true of fintechs Cegid and Silvr, with the development of internal processes based on Artificial Intelligence. <\/p>\n In the case of Cegid, the fintech has opted to integrate AI into its strategy from 2022, so that it becomes the backbone of their offering, according to CEO Pascal Houillon. In addition, the company’s Director of Product and Technology (Andr\u00e9 Bruneti\u00e8re) confirmed the fintech’s desire to free itself from certain tasks, reduce the risk of errors and position itself favorably for the development of use cases specific to their business. On the other hand, Silvr has opted for a massive investment in Google’s artificial solution: Google Cloud. The purpose of this investment is to assess the solvency of debtor companies. <\/p>\n Finally, artificial intelligence can be applied to a number of fields. Factors and fintechs should therefore invest in the use cases best suited to their needs, such as scoring, optimizing receivables management, automating document verification, optimizing or even personalizing service prices, and improving the customer experience. <\/p>\n C) CSR challenges :<\/strong><\/p>\n Banking institutions are steadily developing their financial products to incorporate the notion of differentiation through ESG advantage. Indeed, the development of these new products stems from the banking groups, for whom CSR commitments are an integral part of their strategic plans. In this context, CA Leasing & Factoring and SG Factoring stand out as pioneers of ESG financial products. <\/p>\n Firstly, in 2024, CA Leasing & Factoring is developing a new CSR range “to benefit companies committed to energy and social transition”. This range, in line with the CA Group’s social project, is divided into three parts, depending on the granularity of the level of CSR commitment of the financing and the size of the company. In addition, SG Factoring is emphasizing its ESG offering, initially aimed at large corporations and now extended to SMEs, ETIs and associations in France. SG Factoring’s aim is to finance receivables linked either to sustainable development or to social issues. <\/p>\n From now on, the two factors will be opening up their financial products to companies with strong CSR convictions, or to any company wishing to accentuate their CSR actions through the prism of more committed financing.<\/p>\n Finally, factoring, long seen as a tool reserved for large companies, is now establishing itself as a key solution for the small & middle market, where SMEs and SMIs are looking for flexible financing to secure their cash flow. This segment, mostly developed by fintechs, offers strong growth potential, driven by the rise of simplified, digitized solutions tailored to smaller structures. Technological innovations such as artificial intelligence, and regulatory changes such as electronic invoicing, are making these services more accessible and affordable. <\/p>\n To meet these new needs, factors will have to diversify their offerings with tailor-made products, such as micro-factoring for SMEs, and integrate ESG solutions like SG Factoring and CA Leasing & Factoring to attract companies sensitive to sustainable criteria. Developing partnerships with fintechs and optimizing processes will also be key to capturing this booming market. The future of factoring in France therefore lies in its ability to become a strategic lever for the competitiveness of SMEs and ETIs, reinforcing its role in the country’s economic dynamism. <\/p>\n","protected":false},"excerpt":{"rendered":" In July 2022, the ECB decided to raise its key rates after 7 years with a refinancing rate of 0%. In response to the health crisis, the ECB followed this up with a succession of increases in its key rates to keep inflation under control, reaching a refinancing rate of 4.5% from September 2023 to […]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[77],"tags":[],"class_list":["post-4974","post","type-post","status-publish","format-standard","hentry","category-finance-performance"],"acf":[],"yoast_head":"\n\n
2. Factoring: how it works<\/h2>\n
![\"Factor](\"https:\/\/palmer-consulting.com\/wp-content\/uploads\/2025\/02\/Factor-300x145.png\")
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3. Current state of the factoring market in France :<\/h2>\n
![\"Representation\"](\"https:\/\/palmer-consulting.com\/wp-content\/uploads\/2025\/02\/representation-e1740393093871-300x201.png\")
<\/p>\n4. Factor development levers :<\/h2>\n
5. What does the future hold for factoring?<\/h2>\n