efcom: Mr Brink, the corona virus leaves its mark on many aspects of our lives – on our economy and society, our private as well as our business lives. What is your experience of the current situation, also on a personal level?
Brink: In our office, we fortunately have access to modern EDP and the latest video conference systems. This way, we can keep in contact with our clients and employees, many of whom are working from home. Once again, it has turned out that a digital infrastructure based on the latest technologies sees us through difficult times like these. I myself have already been working from home for several years, regardless of the virus. And on a personal note: Besides the face-to-face contact with family and friends, I miss the Biergarten, wine bars and the Bundesliga.
efcom: The factoring sector, which you have been devoting yourself to for many years, has also been affected by the impact of COVID-19. In your opinion, how grave are these effects for the German as well as for the European factoring market? Which legal changes and restrictions might play a decisive role here?
Brink: Since we usually make use of non-recourse factoring in Germany, it is crucial for us to work with credit insurances. Fortunately, they are generally upholding the accorded limits. In the medium and long term, however, a successful financing of supply chains depends heavily on when and how these supply chains will be fully operating again. The different laws which have been enacted during the corona crisis have by no means deteriorated the legal status of the factor.
In fact though, the factor’s risk control is demanded more than usual due to the higher risk of the clients becoming bankrupt. There is no doubt that this requires modern hardware and software. Numerous legal questions also arise in factoring: For example, a debtor appealing to the moratorium does not yet trigger a del credere. Provided that the debtor is entitled to repayment claims against the factoring client, the factor is not liable, even if a payment has been made to the factor. However, the courts will only announce a final clarification for this matter in a few years.
efcom: The effects of the corona crisis on the entire German economy are already being compared to the ones of the financial crisis — some say, an even greater recession is to be expected. In your opinion, will this weaken the local factoring industry consequentially?
Brink: From the financial crisis we have learned that companies usually have been looking for alternative financing such as factoring. These days, an increasing interest in new business can also be observed. Every time a healthy company draws fully on its credit lines, it should be considering factoring as an additional financing source.
efcom: Is it possible that certain factoring types are promoted by the corona crisis or will the usual division remain the same: inhouse as the dominant type followed by full service and maturity factoring?
Brink: I assume that inhouse factoring will remain the dominant type, but that the cooperation with the factor on the digital level will be further optimised.
efcom: In your opinion, will there also be differences in the sectors regarding factoring activities, e.g. in automotive manufacturing or in logistics?
Brink: Factoring can only finance the revenues which are emerging within the supply chain. If a certain sector is weakened, the factoring turnover will consequently decline as well. However, wherever a sector booms, e.g. in logistics or in the food industry, in EDP and hospital products, the factoring turnover will increase.
efcom: Speaking of sectors and adjustments: The corona issue could probably further accelerate the consolidation of banks and financial companies. What consequences would this possibly entail for factoring?
Brink: In the factoring industry, consolidation outside of the corona issue is driven by the increasing regulatory demands. Smaller institutes can no longer generate the expenditure and associate with bigger institutes. This can be accelerated by the ramifications of the corona virus.
efcom: On the other hand, Corona could well provide a boost to digitisation and technological development in companies. This is a thoroughly positive effect for factoring, isn’t it?
Brink: Many companies definitely have come to realise that the physical presence of an employee is not mandatory at all times for a lot of office activities. Roofing contractors can only work on roofs, but the office employee is able to work from many other places given a functioning digital infrastructure. Any reservations expressed earlier about this will probably be resolved after the corona crisis. Factoring institutes and their clients certainly will — if not already done — adjust their digital structure, train their employees appropriately and as a consequence, make further gains in efficiency.
efcom: What lessons do you draw from the current situation? What are your recommendations for companies in the factoring sector?
Brink: The best chance to overcome such crises is a firmly established and long-term oriented business model with reliable employees. This applies to the factoring institutes as well as to their clients. It could also be helpful to have a great variety of clients from different sectors. However, it is also important to realise that there are sectors besides the typical factoring clients which will not be able to absorb the loss of their revenues themselves, e.g. hotels and restaurants, the tourism sector, performing artists and many more.
efcom: What are the topics your law firm and your clients are dealing with?
Brink: Our labour law-related department, which specialises in employer representation, is currently facing many questions, which is a lot of work for the number of employees that we have. In corporate law, the corona crisis is exposing weaknesses concerning legal company organisation which are to be resolved. And in the area of banks and financing, we are involved in the acquisition of financing institutions, support of platform solutions and new forms of refinancing through securitisation.
efcom: You know the local factoring sector like no other and you have already been talking about factoring in the 1990s. At the time, factoring was still new and uncharted territory. Now, in the year 2020, factoring is a well-established means of financing in the DACH countries. Corona aside, what do you think will become of the factoring business: Will it continue to become more successful over time, or will it stabilise at a certain level?
Brink: Oh, if answers concerning the future just were not so hard to find! Currently, further growth in factoring is expected not only in Germany, but also in emerging and developing countries. I have been working in international committees for more than 20 years in order to standardise the legal bases for factoring institutes. However, this is a very tedious task we have ahead. But we keep hearing that the need for receivables-based financing exists in many countries.
efcom: Thank you very much for this interview!