Factoring

Corporate Treasury & FX in Colombia, Chile & Peru

Report date: 
4 Mar 2025

Commentary

Amongst treasurers, Latin America does not have a great reputation. Even if we have come a long way from the past of military dictatorships and very difficult regulations, it remains more complicated than many other regions. Peru, Colombia and Chile all have seen significant turmoil in the recent past.

So – where do we stand today? It says a lot that, on this call, the peers’ main concern was about whether to use local or foreign banks, and whether the FX rates for foreign remittances were better onshore or offshore. 

Of course, there are causes for concern, especially about the direction of the economy in each country. Peers gave different views on this, especially in Colombia. But, generally, the problems companies face are manageable:

  • The biggest complaint was about the financial transaction tax in Colombia: as its name suggests, the “cuatro por mil” is a 0.4% tax on every money transfer above a monthly threshold. This can represent a significant cost when cash is being moved between banks, even within the same entity. There is a workaround which involves the use of a fiduciary: this does not work for transfers with third parties, and it blocks the cash for 24 hours. Another alternative for cross border international payments between subsidiaries is to settle them offshore.
  • All peers are working to improve working capital. Factoring and supplier finance solutions are available, but factoring is felt to be expensive. 
  • Other avenues for improving working capital include trying to use more modern payment methods. There was a feeling that these countries are maybe less...

 

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Topics covered in this report: 
Tax, Bank Relationships, Working Capital, Factoring, Payments - domestic, Payments - cross border, Payments-digital, payroll, Cash Repatriation, Hedging FX
Service providers discussed in this report: 
Banco Davivienda, Banco de Chile, Banco de Bogotá, Banco de Credito del Peru, Bank of America, JP Morgan, BBVA, Santander, Citi, Yappy

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Corporate Treasury: Funding Working Capital

Report date: 
14 Nov 2024

Commentary

In this second call in our working capital series, we discussed supply chain financing and factoring programmes, and people’s experience with them. These differed significantly.

One of the main takeaways is that, for some companies, managing working capital is a key strategic goal (in our survey of September 2024, 44.6 % said their company has a formal working capital policy): this is reflected in the measurements and tools, which vary to reflect regional differences. Some use working capital financing if it is a cheaper source of funding: they often find it is not - though some find it is. Many participants are interested, but prioritise operational issues, such as improving supplier payment terms or late collections.

Our survey showed a higher level of adoption of receivables financing (factoring, securitisation) at 48%, versus 36% for supplier financing. For future intentions, both solutions were 39% and 41% respectively. The call gave a lot more colour.

Factoring: 

  • One participant had implemented a factoring programme. They initially had a poor experience with a fintech, and so moved to a bank solution, the bank offered the same price without a credit wrap. The company views participation in the programme as a way of managing wallet share, and so carefully controls distribution. This works, but it limits the programme size.
  • Few others on the call were actively factoring or selling their receivables. Some had discontinued existing receivables programmes, due to cost. This generated a lively discussion: some found the cost attractive, especially if you include other considerations, such as risk mitigation.
  • Factors need a lot of
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Topics covered in this report: 
Bank Relationships, Factoring, Supply Chain Finance, Procurement, Credit Risk, Wallet Share, Virtual cards, Funding
Service providers discussed in this report: 
IFC, Barclays, Deutsche Bank

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Corporate Treasury & FX in Egypt

Report date: 
29 Oct 2024

Commentary

Several countries with the worst financial crises have decided to implement painful measures to improve their economies. We recently covered Turkey; this report is about Egypt, and Argentina will follow soon.

The measures are well known: significant devaluation (usually more than 40%), and raising interest rates to punitive levels - 30% to 50% is the norm. The impact on the domestic consumer is significant, but the early signs are that there is some improvement. Inflation levels are generally coming down, foreign exchange shortages have begun to ease, and foreign businesses are starting to have greater confidence, though all remain cautious.

This is certainly the case in Egypt: participants on the call all reported business levels which were difficult but not dire, and less difficulty repatriating funds. Inflation has been 36%, coming down to a reported 26% in September 2024 – but with a peak of 70% to 90% on some key food staples.

Sadly, geopolitics cannot be ignored. Turkey and Egypt live in a troubled neighbourhood: Egypt has a border with Gaza - a massive influx of refugees could destabilise the country. Its own recent history is one of constant conflict between more radical religious elements and governments which tend to be authoritarian, but relatively secular and pro business. Importantly, the United Arab Emirates and Saudi Arabia were cited by participants as a major source of foreign investment, which has considerably helped with the foreign exchange situation. In particular, the UAE has signed a multi billion dollar agreement for the development of a significant area on the Mediterranean Sea – the precise amount is not certain, but it appears to be at least USD 15bn, with total value potentially being above USD 100bn.

There is a problem on the southern border as well: Ethiopia is building a dam on the Nile. Egypt takes a very dim view of this – but it is not receiving much publicity.

What does this mean in practical terms?

  • Pressure to use documentary credits (LCs) has....
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Topics covered in this report: 
Bank Relationships, FX, Hedging FX, Letters of Credit (LC), Customs, Factoring, Cash Repatriation
Service providers discussed in this report: 
Standard Chartered, HSBC, QNB, Citi, SWIFT, Commercial International Bank Egypt

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The influence of Corporate Treasury on Working Capital

Report date: 
15 Oct 2024

Commentary

Working capital. It comes up regularly in our discussions. Every business hates it: it is expensive – it needs to be funded and managed; accounts receivable and payable teams need to be staffed, while inventory brings warehousing costs and obsolescence risks. But no business can do without it – everyone hates to win a sale, and then find it cannot be fulfilled, due to a lack of inventory or credit appetite for the customer.

The cost of working capital has increased recently: higher interest rates are painful, while just in time supply chains are being called into question, as COVID and geopolitical issues have disrupted logistics. 

This call is the first of several where we look at how treasurers are handling this issue. This session was about the role of treasurers, and the involvement in the business decisions: this is a real test of treasurers’ influence. It was a rich and lively discussion – the full report is 15 pages. I encourage people to read it.

We started with the results of a survey amongst our members.

  1. This was not a surprise: participants all felt they had an important contribution to make, but that it was not being fully appreciated or utilised by the business. Involvement was highest in managing payables – it is mostly administrative. It was lowest in inventory management – this is typically under supply chain. Receivables management was between the two.
  2. This was not discussed in the call or the poll, but there was no mention of the mathematical models which can be used for the trade-offs between lost sales and financing costs. However, several participants wryly remarked that their businesses accepted longer payment terms for their customers than they received from their suppliers – even when they were the same company. 
  3. Several participants benchmark their working capital levels to the competition. This can easily be done using the published annual accounts (but beware of differences in accounting treatment!), while some financial services providers have tools which use anonymised data from their working capital programmes.

The main takeaways: 

  • Approaches vary considerably. Some participants have the full support of the CEO and CFO. These companies view working capital as a key component of their balance sheet structure, and have implemented comprehensive programmes to manage it. These include KPIs and programmes implemented with Sales and Procurement. For others, management does not view it as a priority: KPIs either do not exist, or are lesser targets than sales and revenue.
  • Management with a high focus on the topic was often new, and did not seem to be driven by financial necessity, but by management principles.
  • One participant found that policies....
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Topics covered in this report: 
Working Capital, Supply Chain Finance, Invoicing, Factoring
Service providers discussed in this report: 
Citi, Calculum

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