Victor Calderón
Director General
ArcCanto Recursos Financieros
View from the Top

Looking for Money? Debt is Best

Tue, 11/01/2016 - 15:00

Q: How can the private sector help small and mediumsized Mexican companies grow?

A: The services granted to large companies and medium companies are vastly different. We executed a total of 2,000 financial diagnostics and found that only 8 percent of Mexican companies have formal access to financial resources like banks. We found that almost 80 percent of the businesses we interviewed have inefficiently structured credit lines. Some larger companies offer training programs for their suppliers to support entrepreneurship or financing programs like factoring. It is not a perfect system but the private sector is increasingly choosing more small and medium-sized suppliers as long as they can provide products and services on time. On the downside, large corporations are making payment periods longer. This negatively impacts small suppliers as they cannot accept more projects or grow without being able to finance them. The idea is not only to provide financial support but also to grant training and create a financial culture. This combination is what ultimately helps companies grow. We are involved with Endeavour Entrepreneur to provide entrepreneurs with the right financial tools to make their businesses more professional.

Q: How are you helping decrease cases of late payments in Mexico?

A: Large corporations receive the most profit from their supply chain and corporations are choosing to extend payment contracts from 30 days to 60 and even 180 in extreme cases. To counterbalance payment issues, we designed our consultancy to offer suppliers a way to advance payments from big companies. The principal advantage of our programs is that they are transparent for the big companies and do not require any type of contract with them. The balance does not consume a company’s credit line and it does not put our clients in debt with banks. It allows us to help suppliers that collaborate with large corporations such as Pepsi that do not offer financial factoring. We have over 60 cases of successful companies that have grown substantially thanks to our services. Many have outperformed their sales expectations thanks to the increased cash inflow.

Q: How are you helping companies become better structured?

A: Every three months we offer financial workshops where the Director and the financial team of our client’s company can learn about finance, the latest products and how to make financial evaluations. It helps companies determine their optimal cost policies, cycles and growth strategy. ArCcanto considers this an important part of the business strategy, as companies without adequate financial information often use credit incorrectly. If we give them follow-up services and help them choose the best projects to enter, company strategies improve drastically. Sometimes long-term contracts can cause companies to lose more money than they earn if the profit percentage or operational costs are not properly defined.

Q: What role do you envision for ArCcanto in the Mexican financial world?

A: At the moment, we have a strategic alliance with a multiple-purpose financial institution (SOFOM). ArCcanto is in the process of developing a CKD especially for mezzanine debt that differs from the senior debt granted by traditional banks. Companies that grow extremely quickly and are in need of capital to keep up with the accelerated growth often have to use private equity, which is expensive. Fortunately, mezzanine debt is the perfect middle point between senior debt and private equity. It helps to financially boost companies in a flexible way as it allows 10-year plans, with a three-year grace period, among other complementary details that can be added to the negotiation. It is a way to create a financial plan based not on history but the future flow of cash. Our CKDs based on mezzanine debt have tickets of MX$50 million (US$2.6 million) and MX$200 million (US$10.5 million) that are only for small and growing companies. We are creating them with the support of possible partners that are interested in helping small companies grow. Even though various CKDs centered around mezzanine debt already exist, they are out of reach for small companies because their tickets start at MX$200 million (US$10.5 million). It may be more expensive than senior debt but it is ultimately much cheaper than private equity, which is attractive to smaller companies.