From the Atacama Desert to the Amazon rainforest and from the high peaks of the Andes to the Great San Julian Depression, Latin America is so vast, so diverse and such a fascinating place that
it would be impossible to define it in words. It’s a land that has given rise to ancient civilizations
and modern metropolises, natural wonders and feats of engineering, and great thinkers, artists and writers. One of those writers, the famous Brazilian author Paolo Coelho, wrote a story called
the Alchemist about a young Spanish shepherd boy, Santiago who sets out on a journey of
discovery and opportunity. In this article, as a Spaniard, I would like to take you, the reader, on
a journey to discover opportunities in the Trade Finance Sector in Latin America.
Supply Chain Finance, Reverse Factoring, Confirming or whichever other term we choose to use,
refers to a supplier payment and financing management service which changes the way we
understand access to financing, especially for the Small and Medium sized Enterprise, as well as
the way that parameters and payment conditions are negotiated between buyers and sellers.
Confirming has become such a hot topic of late that it will be difficult to come up with something
original that has not already been considered, discussed or analyzed. Furthermore, given that
there are as many different Confirming scenarios in Latin America as there are countries it is not
easy to generalize. We can, however analyze and assess certain common shared factors which
have arisen as constant evolution makes commercial financing systems simpler, more agile and
more efficient, reducing operational risk in the process.
Brazil and Chile, the innovators and trend setters, Mexico, Colombia, Peru, Uruguay, Panama,
Ecuador, Costa Rica,… indeed all the Latin American countries, are experiencing a new reality in
the field of Trade financing and each country has taken its own position and approach: a few
countries have more generalized and regulated systems, some have more advanced
implementations and processes, while others are only just getting started. Nevertheless, all of
them in one way or another, are undergoing a gradual and constant transformation process as
the Commercial Financing industry itself changes. What may seem like small adjustments today,
will over time be seen as the beginnings of a 180-degree industry flip.
One especially noteworthy development is the widespread implementation of electronic
invoicing. This is happening to a greater or lesser extent depending on each country’s current
level of obligation and regulation but is undoubtedly a natural process management evolution
that all economies will end up going through. In addition, certain countries are becoming
references for others in the implementation of centralized invoice repositories, those
compulsory centralized systems for invoice storage, exchange and management. These systems,
backed by the state, encourage ways of working which provide security and robustness. They
allow financial operators, particularly, to develop safe and agile operating processes and
protocols which they can confidently use to implement their financing products.
As Latin America embarks on its Confirming journey, it doesn’t have to go it alone. Although
each country will be on its own unique path and blaze new trails, it can lean on the countries
close by and further afield who have been or are going through similar experiences. It also has
in Spain a country with which it can share and contrast experiences in a similar language. It has
been 30 years since Confirming came to light, and it would be remiss of us not to highlight certain
parallels with the evolution that is taking place and will take place in LATAM. In terms of
innovation, improvements and market adaptations, 30 years is an eternity, especially at a time
where advancements in technological tools, improvements in communications and the
application of best practices have all happened at dizzying speed. The pace of change in the
future will be even faster, timelines will shorten, and there may be differences and distinct
phases. Nevertheless, reaching a certain level of development and sophistication will take
time.
Confirming brings together characteristics and features that can be seen as the cornerstones of
booming working capital financing systems: a high level of automation and digitization, service
speed and agility and, low operational risk in processes and massive information and data
processing. All of these together provide enough objective proof that this product has
consolidated its place in the Trade Finance world and is here to stay for many years to come.
The market, in constant flux, never ceases to integrate alternatives, improvements and new
modalities. Confirming at the moment, regardless of the country, the scenario and the context
in which we operate, is not the same as it was 20, 10 or even 5 years ago and it will certainly not
be the same as it is today within the next 3 or 5 years.
The Trade Financing industry’s thirst for Confirming in LATAM is unquenchable. Numerous
initiatives and projects have been rolled out in recent years. In some cases, these are projects
linked to solid banking structures, while on other occasions they are projects generated from
the creation of new entities, financial establishments and Fintechs – as defined in accordance
with the standard rules and regulations of each country.
The hands-on experience of facing up to difficulties and overcoming challenges in particular
settings, undoubtedly confers an advantage when it comes to proposing equivalent initiatives
and solutions in different contexts: similar things should be done “but in other ways”, adapting
them to each environment while also taking advantage of new technologies and current
capabilities. Today, we can tackle problems, take on structures and consider services much
faster, shortening development and implementation times five-fold. However, let us not forget
that people and companies are an integral part of all of this and their habits, thoughts and
behaviors do not change so readily.
Time may be of the essence but it’s essential to be given time and, changing mindsets by
getting providers used to financing their rights in another way takes time: eliminating all kinds
of physical documents, takes time; doing away with the face-to-face intervention of a financial
manager, takes time; understanding that Confirming is a product that must be known, valued
and used by the supplier whenever payment condition negotiations are discussed with the client
during the general purchase-sale process, requires time.
In short, despite the fact that technological advances allow us to do things at breathtaking speed
and we can exchange knowledge in the blink of an eye, we need to consider that even when we
can objectively state that a system is simpler, more efficient and more effective, people still
need time to learn, to adapt and to mold their behavior – and we should dedicate resources
accordingly. Any implementation of a new Confirming project in LATAM, requires careful
analysis and a good grasp of the starting reality, the difficulties and barriers that such an
important change can pose to companies, especially for those Small and Medium Enterprises,
who are the main “users” and recipients of the service. As Coelho wrote, “Change. But start
slowly, because direction is more important than speed.” “When we strive to become better than we are, everything around us becomes better too.” (Coelho)
In order for the Confirming journey to progress operators might take time to rethink their
strategies and strive to do even better: for some the challenge might be to start taking steps
towards the implementation of simple but robust Confirming solutions and in the process
become market creators and operating trend setters; for others, seeking to discover new
product options and values might be the way forward – identifying new features and niches
which allow them to stand out and differentiate themselves; and some other third parties may
be able to leverage themselves from the shadow of a larger reference to implement basic
Confirming developments that will allow them to, at least, carry on offering these solutions to
their client portfolio.
In the story of the Alchemist, Santiago is shown an opportunity and embarks on a journey alone.
Along the way he seeks advice and companionship and thanks to these he is able to grow,
overcome adversity and find his treasure. Countries, suppliers and clients have before them a
moment of real opportunity to plot a course with Confirming and take advantages of the many
benefits it can bring in an ever expanding and changing Trade Financing market. Perhaps the
players in LATAM should follow Santiago’s lead and set out with conviction and determination
but also be willing to share experiences or ask for help along the way because “when you want
something, all the universe conspires in helping you to achieve it.”
