Exploring Singapore's Factoring Frontiers: Market Performance and Future Trajectories

In our earlier discussion, we scrutinised Singapore's economic landscape in 2022, spotlighting key sectors and the burgeoning significance of factoring for SMEs. Now, as we embark on Part 2, let's revisit the insights gained and seamlessly transition into an in-depth analysis of market performance and emerging trends in Singapore's factoring industry. Join us as we continue our journey into the intricacies of the financial landscape shaping business endeavours in Singapore.

Market Performance and Supply

According to the latest FCI statistics, Singapore’s factoring volume in 2023 saw an impressive growth of 52 percent compared to the previous year. This was largely driven by growth in international factoring (up 55 percent to EUR 40bn).

Domestic factoring also registered growth, though smaller at 25 percent to EUR 4bn. 

Export factoring was driven by the growth in the exporting of merchandise which rose 15.6 percent in 2022. Non-oil domestic exports expanded by 3.0 percent (on top of the 12.1 growth in 2021), which was due to the increased shipments of both electronics and non-electronics products, and which likely contributed to the growth in export factoring volume. The rise in domestic factoring could be attributed to the growth of the construction and manufacturing sector, where receivables can be factored to generate cash flow and liquidity.

Factoring is commonly used in labour intensive industries such as facilities management industries (cleaning, security, maintenance), contract workers and staffing services, construction, and manufacturing sectors to name a few. The average client has an annual sales turnover of around SGD 1m to SGD 3m, with a facility size of SGD 200,000 to SGD 500,000. Facility and pricing structures are typically offered as per the table below:

Banks remain the major players in the factoring industry with an estimated market share of 90 percent. Local and foreign banks who are in this space are DBS, UOB, OCBC, HSBC and SCB. The rest are accounted for by factoring companies, finance companies and fintechs, namely Bibby Financial, Hong Leong Finance and Funding Societies, to name a few.

Competition is keen with lenders and factoring providers increasingly looking at innovative ways to penetrate the industry further. Banks remain the major players for large corporates and medium-sized enterprises, but they have also entered the SME space by partnering with B2B supply chain finance platforms. One such example is where local bank OCBC partnered with PracBiz to leverage its transactional data of suppliers in order to quickly assess their credit quality without having to rely on traditional data such as historical financial statements. Using this type of business funding channel, SME suppliers are able to seek funding for their invoices upon submission to buyers with simple and fast credit approval.

Fintechs are also forging strategic partnerships within the payment ecosystem to leverage their digitalisation to penetrate the value chain. An example is the strategic partnership between real estate company Savills and the fintech Banco where the payment ecosystem and financing has been digitised to offer competitive supply chain financing and early payment solutions to SME suppliers and service providers in the property management sector (which is traditionally expensive and administratively difficult to manage). This transforms the landscape of how traditional factoring business is conducted in terms of outreach to suppliers, invoice approval, assignment of debts, submission and verification of debts, and processing of payment.

Future Trends

Digitisation and strategic partnership in the ecosystem will continue to shape the distribution channels and risk management frameworks in the factoring industry. Factors’ ability to fund seamlessly, manage risk and scale is a recipe for success in this highly competitive and connected world. ESG (environment, social and governance) has also become more prominent in shaping corporate strategy and decision making. The global climate crisis is a very real aspect of that, and the corporations are one of the largest stakeholders in this. MAS (Monetary Authority of Singapore) is partnering various stakeholders in the financial sector and international counterparts to green the financial sector and support the growth of the green economy in Singapore and Asia. Banks are rolling out green finance frameworks to offer sustainable financing to SMEs since they play an important role in sustainability development in the region. Green financing allows SMEs to contribute to the greener environment, to potentially access new markets and opportunities, to reduce costs and build strategic competitiveness. This is perhaps a trend that an increasing number of factoring service providers should embrace in their product offerings as well. ‘Green Factoring’ could be the way forward to support Net Zero Emissions, cultivate a responsible enterprise and build sustainable financing.