Marion benitez
Director General
Cumplo
/
Startup Contributor

E-Factoring To Reactivate Business

By Marion Benitez | Thu, 11/04/2021 - 13:04

Does your company struggle with cash flow? There is a perfect way to boost your cash flow and, above all, it’s fair, fast, simple, and totally digital. It will allow you to improve your credit score and attain highly developed financial products.

To get started, what is financial factoring?

Financial factoring is a transaction in which a company sells its accounts receivable, or invoices, to a financial company, so that the issuing company can receive its payments prior to the due date. This kind of transaction works well in any payment period, making it easy for SMEs to balance their financial needs. However, the longer the payment terms of invoices, the more suitable is this alternative financing method.

The process is quite simple. First, sign an agreement with a factor company of your choice so it can advance your money. It then collects the money for you. By the end of the period (invoice payment due date), the factor company receives the total payment of the invoice.

There are three forms of factoring:

  • For customers. The SME sells its accounts receivable and thereby obtains cash to continue with its operations.
  • For suppliers. In this case companies resort to factoring to be able to pay their suppliers in advance.
  • International. This consists of financing accounts receivable from exports.

What are the functions of factoring companies?

  • Assume the credit risk.
  • Take the exchange risk (if the invoice is in foreign currency).
  • Responsible for collection management.
  • Carries out the effective collection of the credit.

The Tech Component

So far, I have described a traditional financial instrument. In addition, traditional financial institutions are slow, demand a great deal of paperwork and take their time for approval. This is why factoring in Mexico has not been so useful for SMEs. According to the Quarterly Survey of Conjunctural Evaluation of the Credit Market, conducted by the Bank of Mexico (Banxico), for the period January-May 2021, on the sources of financing used by reporting companies, 65.8 percent used financing from suppliers, 34.4 percent used credit from commercial banks, 17.8 percent said they had used credit from other companies within their corporate group or from the parent office, 4.8 percent from development banks, 5.6 percent from banks domiciled abroad and 1.6 percent through debt issuance.

But technology is revolutionizing the way of accessing factoring: Now the entire process can be done online, from the registration of a company, the request for credit, the upload of documents all steps in a single platform. There is no doubt that technology has improved customers’ experience and SMEs’ financing speed.  

E-Factoring During the Pandemic

One of the main challenges companies faced during the pandemic was transforming their processes (from analog to digital) and taking advantage of technology. The pandemic was a key factor for accelerating digital transformation projects, no matter the size of companies, whether SMEs or large businesses. They all had to focus on issues such as online sales, electronic payments, e-commerce and, in general, the digitalization of their businesses.

During the lockdown, traditional banking institutions were forced to close. The granting of loans slowed down at a moment when companies, more than ever, needed cash to continue operating. In the same period, digital platforms had a notable increase in financing requests. For instance, in the case of Cumplo Mexico, our growth from 2019 to 2020 was 122 percent. In just three years, we’ve financed 4,286 loans and MX$2.69 billion (US$133 million).

Digital transformation and digital financing are here to stay. It doesn’t matter if you are a small, medium or AAA company, digital factoring is a great option to manage your business' working capital needs, either on accounts receivable or to be able to anticipate payments to suppliers. It speeds up approval processes and opens new alternatives for loans to companies that otherwise would have neither access nor the possibility to build a positive credit history. In addition, it’s 100 percent digital, simple and fast.

Photo by:   Marion Benitez

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