Fintechs as Key Allies for SMEs in Times of Nearshoring
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Fintechs as Key Allies for SMEs in Times of Nearshoring

Photo by:   Paulina Aguilar
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By Paulina Aguilar - Mundi
Country Director and Co-Founder


Mexico’s economy is undergoing a transformation. Its offer, strategic positioning and talent pool are increasingly giving investors more reasons to consider the country. Visibly attractive to nearshoring companies, it is no surprise that Mexico is becoming the China of Latin America.

Liquidity within a company is expected to be critical in 2023 in the face of increasing slowdown projections, and the fintech sector is poised to boost this process among exporting companies. Access to favorable credit and limitations in negotiating with clients abroad are two common problems for exporting companies, especially those specializing in small and medium-sized enterprises (SMEs).

These are the main reasons why 8 out of 10 exporting SMEs in the world need financing and, unfortunately, not all of them are able to obtain it. According to official data from the World Trade Organization (WTO), those companies based in developing countries have the most complications in this matter, since extended payment terms affect their cash flow and can lead them to bankruptcy.

Between January and September 2022, Mexico exported a total of US$430.3 billion, highlighting sectors such as manufacturing, hydrocarbons and agricultural products. However, the reality behind this high number is that large companies are paying their invoices between 120 and 180 days later, a situation that is almost impossible for SMEs to sustain.

The good news is that fintechs have taken working with small and medium-sized exporting businesses seriously, making financial tools like international factoring available to them and showcasing it as a good business practice, as it supports a company's economic growth and converts cash sales into installment sales.

International factoring is now a trend in Mexico, as it provides exporting companies with liquidity, consolidating cash flow without debtors influencing the process.

Another key factor is that fintechs now provide exporting companies with the ability to have working capital to support their operations in a foreign currency, especially US dollars, a currency that has been particularly strong during 2022 and which has led Latin American currencies to lose ground.

In traditional banking, for example, financing in a foreign currency requires previous data and documentation, as well as a consistent credit history, a requirement that many exporting companies do not usually meet, so they tend to end up leveraging short-term loans, with high interest rates and commissions, that impact their productivity and competitiveness. On the other hand, fintechs, by increasing their line of indebtedness in dollars, allow them to improve their natural exchange rate hedging.

Consequently, adopting this type of technological financial solution also leads exporting companies to optimize their working capital, covering the risk of insolvency of their clients and also avoiding  payment collection efforts, which will allow them to stay within their business objectives and maximize their profitability.

This is where the financial technologies industry has gained ground, and we are not just talking about increasing their business, but also about providing real support to exporters, as they can cut risk study times, reduce commissions and also the type of capital disbursement, making an exporter's business more agile.

As the ECLAC (Economic Commission for Latin America and the Caribbean) has pointed out: "These digitally enabled models promote the generation and capture of data that, when processed and analyzed with intelligent tools, make it possible to improve decision-making and optimize supply. In conclusion: the future is in technology."

Moreover, there is the advantage of accessing timely and agile financing to protect companies from inflation, including  the increase in raw material prices during 2022. Due to global macroeconomic scenarios, there is also a waiting period of up to six months for a loan in traditional banks that can tighten companies’ financial plans.

This is a key element in Mexico, which according to 2021 WTO data, is the 11th-most important exporting country in the world only behind China, the US, Germany, Japan, the Netherlands, France, South Korea, Hong Kong, Italy and Belgium.

In the last two years, it was proven that fintechs are necessary in times of economic recovery, since access to easy and opportune financing allowed companies to not only protect their credit quality but also  improve the quality of their production processes by having immediate liquidity and continuing to offer their services to more clients, meeting their delivery schedules as well as those of business expansion.

A Step Forward

The reduction of time and processes in credit evaluation is a key factor and what ultimately differentiates fintechs from traditional banking. This may even be one of the reasons why migration toward this type of company is growing.

But other characteristics that bolster the profile of fintechs should also be mentioned. One is transparency, as technology and automation are making decisions about applicants, which prevents a poor relationship from interrupting the financing of companies.

In addition, it should be noted that the fintech sector has been crucial for innovation within the region's financial ecosystems and that traditional banks have pursued alliances and joint cooperation projects that facilitate their processes and help to improve the levels of financial inclusion, one of the main objectives of these  companies.

More importantly, regulation in this sector continues to develop around the world, reducing risks and improving the supervision of financial stability that must exist in this ecosystem.

But beyond the factors that make fintechs attractive to this segment of exporting companies, assertive financial planning is necessary for companies to understand how to adjust to the new economic scenarios, since given the current situation and the bleak outlook for 2023, there will certainly be periods in which there is a greater demand for liquidity, and having it will put them ahead in their business.

Photo by:   Paulina Aguilar

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