'Factoring in Colombia will be driven by the development of the e-invoice marketplace'


COVID-19 shaped 2020 and provided a challenging environment for all industries, explains Maria Camila MUÑOZ, CEO & Founder, Exponencial Confirming S.A.S. Colombia in the article about Colombian factoring market included in the most recent edition of the World Factoring Yearbook. Economic growth, having risen to 3.3 per cent in 2019, was on track to accelerate further in 2020, but the COVID-19 pandemic hit the economy significantly causing the worst recession in nearly half a century.

The government responded in a timely way to the crisis and took decisive action, aimed firstly at the protection of human lives, and secondly to support the economy. A major spending package was announced for 2020 and 2021, totaling nearly USD 8.5tn (or almost 3 per cent of the 2019 GDP), to enhance the healthcare system throughout the country. Tax collection in some sectors was decreased, tariffs were reduced for the expediting of imports of hospital supplies, and a support package was put in place to help companies continue to make payroll payments (Programa de Apoyo al Empleo Formal, PAEF).

Emergency lines of credit and loan guarantees were granted for companies that were more deeply affected by the crisis. The State of Emergency allowed the Government to suspend what we call “the fiscal rule” for 2020 and 2021. In terms of monetary policy, the Central Bank cut its intervention rate by 250 basis points between March and September and reduced it to its lowest historic level. Measures were also introduced to increase liquidity.

Despite these efforts, the economy contracted by 6.8 per cent in 2020. This year 2021 is expected to be one of recovery as the vaccination program is rolled out and normality returns. A fiscal deficit is foreseen for 2021 and for the upcoming years. Low interest rates are expected to facilitate a gradual pick-up in investment as major infrastructure projects such as 4G highways and the Bogotá Metro Project resume. Inflation is expected to remain near the lower limit of the range set as a target by the Central Bank, as inflationary pressures from currency depreciation will be mitigated by weak demand.

Factoring took its toll in the pandemic, as businesses closed for several weeks and funds were limited during Q2 of the year. However, efforts were kept going to establish the highly anticipated RADIAN (Centralised Invoice Registry), which facilitates the tracking and trading of electronic invoices as securities. 2021 started with all interested parties participating in the pilot phase. Centralised electronic factoring – an alternative financing tool used by SMEs – has finally landed in Colombia.

FACTORING INDUSTRY ENVIRONMENT

The RADIAN (Centralised Invoice Registry) is expected to be fully operational by the end of 2021. The platform that was announced five years ago is part of the DIAN Electronic Invoice system, and it allows an updated record of events related to electronic invoices as securities, thus creating reliable traceability of these documents. 

For 2020 – 2025, we still expect that factoring in Colombia will be driven by the development of the e-invoice marketplace. The consolidation of fintech companies will, through their technology, shift the market and pave the way to exponential growth in factoring, both domestic and international. Electronic platforms are now strong established players and would appear to account for more than 20 per cent of total factoring volume.

Privately owned factoring companies have reported non-verified volumes that account for an additional USD 55bn in 2020 (the information shared by Financial Superintendency of Colombia does not include privately owned factoring companies on their data, as it is a part of the market not being diligently managed or tracked). Furthermore, fintech companies operating electronic platforms account for a large portion of the market by allowing local banks and private funds to deliver cash quickly, easily and safely for factoring users among all sectors.

2020 was a relatively quiet year for factoring and confirming, because companies were able to unlock working capital in many ways given the array of electronic options offered by banks and fintechs.

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To read the whole article and much more, order World Factoring Yearbook 2021 here.