Latin America has enormous potential for Factoring development (according to FCI, it represents 5% of the volume worldwide) which, based on the region’s status as global leader in the implementation of e-invoicing, will be conducive to the necessary financial inclusion of its SMEs, a requirement for achieving greater and balanced socio-economic development.

99% of businesses in Latin America are SMEs (more than 800,000 companies). However, their contribution to GDP is only 25% due to their low productivity levels. The cost of credit for SMEs can be as much as double the cost of financing larger companies, according to data provided by ECLAC – the Economic Commission for Latin America and the Caribbean. In fact, one in three small businesses in Latin America identifies access to financing as a constraint on their development.

Implementation of Factoring in Latin American countries

• Chile: Santiago de Chile is the headquarters of the Chilean Factoring Association (ACHEF), whose members account for 90% of the factoring carried out in the country. Other non-banking factoring companies are grouped in the association Empresas de Factoring Chile, A.G. The legal regulation came into force in 2005 and was amended in 2009, strengthening the bill as an executive instrument.

Number of Factoring companies	130
Domestic Factoring turnover*	20,465
International Factoring turnover*	1,779
Total turnover*	22,244
*In millions of dollars/Source: FCI (Factors Chain International)

• Colombia has had regulations in place since 2008.

Number of Factoring companies	30
Domestic Factoring turnover*	3,692
International Factoring turnover*	78
Total turnover*	3,770
*In millions of dollars/Source: FCI (Factors Chain International)

• Peru began to experience buoyant factoring (regulated by Law since 2011) from 2015, when the Ministry of Production converted the Negotiable Invoice into a mandatory instrument, similar to a bill of exchange, promissory note or cheque.

Number of Factoring companies	9
Domestic Factoring turnover*	3,539
International Factoring turnover*	134
Total turnover*	3,673
*In millions of dollars/Source: FCI (Factors Chain International)

• Mexico: the 18 members (14 Financial Institutions and four Multiple-Purpose Financial Institutions) that make up Asociación Mexicana de Factoraje Financiero y Actividades Similares, A.C. (AMEFAC: Mexican Association of Factoring and Similar Activities) operate 90% of the country’s Factoring: 433.807 billion pesos in 2015. The activity has been legally regulated since 1990.

• Brazil: where Factoring is known as “Commercial Development”, began its journey in 1982 with the creation of Associação Nacional de Fomento Comercial (ANFAC: National Association of Business Development), with nearly 1,000 associates and more than 150,000 clients. However, that same year, a Central Bank Circular prohibited the activity of the sector. It was not until September 1988, with the entry into force of Circular No. 1359, when factoring activity was resumed in the country. 

Influence of the e-invoice

To explain the evolution of Factoring in Latin America, it is essential to talk about e-invoicing, since this tool fosters the development and greater efficiency of Factoring:

• Through online processes in real time.
• With the standardisation and automation of risk management processes.
• With the integrity of invoices.
• Facilitating the negotiation of invoices for lower amounts by avoiding long and expensive verification processes.

Latin America is the world leader in the use of e-invoicing and the annual E-Invoicing/E-Billing reports prepared by the Swiss consulting firm Billentis rank Latin America as the most advanced region in the implementation of this tool, generating more than half of the total worldwide: 36 billion invoices in 2017 (which translates into a growth of 32% with respect to 2016). In addition, according to the report, in 2025 the e-invoice will be the prevailing model, even though today it accounts for a mere 10% of invoices on a global scale.

Some examples of Latin America’s status as the world leader in e-invoicing are as follows:

• Chile, a pioneer country worldwide, where 88% of the invoices issued are electronic (and where it has been legally mandatory for all companies since 1 January 2018).

• Peru, where all companies have been required to issue e-invoices since 2018, under penalty of a fine.

• Mexico, where e-invoicing is already mandatory for invoices issued by the Government to companies (G2B) and consumers (G2C), generating an annual exchange of 10 billion e-invoices per year in its economy as a whole.

• Brazil, where almost 1.5 million companies already issue e-invoices.

In conclusion, the use and regulation of Factoring in the LATAM market is relatively recent. However, turnover as well as the number of Factoring companies are experiencing rapid development supported in part by the widespread use of e-invoicing.

If, as we said at the beginning, SMEs account for 99% of all companies and generate 67% of employment in Latin America, only by helping them to overcome their main obstacles (mainly access to sufficient and effective financing) can we expect a substantial improvement of the regional economy and its production fabric as a whole.