Factoring: Unlocking MSME growth in service economy

Factoring: Unlocking MSME growth in service economy | Daily Tribune

The Philippine economy thrives on Micro, Small, and Medium Enterprises (MSMEs), which make up 99.5 percent of all businesses.

A large portion of these businesses operate in the service industry which accounts for 86 percent, or 44,872, of the new corporations registered in 2024.

Yet, traditional bank loans remain out of reach for many MSMEs engaged in the service industry, as they lack real estate, the most common and most accepted collateral for loans.

Factoring offers a solution.

Factoring, as defined by Lee Kheng Leong, the Asia-Pacific representative of HPD Lendscape, the world’s leading digital factoring, supply chain finance and asset-based lending platform provider, is the purchase of customer accounts receivable from the seller by the factor who, in turn, provides essential financial services.

These services include credit protection, which shields businesses from the risk of customer default; advance service, which gives MSMEs immediate access to cash instead of waiting for payments; and collection and receivable management, which ensures efficient handling of collections and buyer sales analysis reports.

Factoring allows businesses to perfect a security interest over accounts receivables, receiving immediate cash instead of waiting weeks or months for customer payments.

This is a game-changer for service-based MSMEs, whose primary assets are often receivables, equipment and future earnings rather than land or buildings.

By giving businesses faster access to cash, factoring ensures smoother operations, allows timely payments to suppliers and employees, and provides much-needed liquidity for expansion.

The Personal Property Security Act, which is part of the National Strategy for Financial Inclusion, aims to provide affordable and available financing to the underserved, including MSMEs.

With the PPSA registry officially established this year, MSMEs can now leverage receivables and other movable assets as collateral, making factoring a more secure and accessible financing tool.

By integrating factoring into the financial system, the Philippines can fuel MSME growth, create jobs, and sustain its service-driven economy.

As the country’s corporate regulator, the Securities and Exchange Commission (SEC) plays a critical role in fostering a regulatory environment that supports MSME access to financing, including factoring.

By ensuring proper oversight and governance of financial service providers, the SEC strengthens investor confidence in factoring arrangements, promoting transparency, fair practices and financial stability.

The SEC’s efforts to streamline business registration and encourage alternative financing mechanisms are key to MSME growth. The rise of factoring, supported by movable asset financing under the PPSA, aligns with the SEC’s mission to enhance financial inclusion and capital market development.

Through digital transformation and investor protection initiatives, the SEC is paving the way for more accessible, innovative, and sustainable financing solutions.

Factoring will not only empower MSMEs but also strengthen the Philippine financial landscape, making business financing more dynamic, competitive and inclusive.