Factoring’s Future: Navigating Obstacles and Unlocking Growth in 2025 and Beyond
The factoring market in Peru is poised for continued expansion, with projections estimating a 20% growth rate in 2025. However, this anticipated progress represents a significant slowdown compared to the explosive growth seen in recent years. Behind the numbers lies a complex web of challenges – from payer resistance to invoice processing inefficiencies and limited access for microenterprises – that will determine whether factoring can truly unlock its potential as a vital financing tool for Peruvian SMEs.
The Slowdown: Why Growth is Moderating
After experiencing remarkable growth rates of 72.8% in 2021, 38.4% in 2022, and 24.7% in 2023, the projected 20% increase for 2025 signals a maturing market facing increasing headwinds. While a 20% rise still represents substantial expansion – potentially reaching S/ 52,000 million annually – it underscores the need to address systemic issues hindering wider adoption. The current registration of only 25,940 suppliers as of September, despite 6.1 million MSMEs operating in the country, highlights a significant gap in market penetration.
The Payer Problem: A Power Imbalance
One of the most significant obstacles to factoring growth is the reluctance of some payers (the companies purchasing goods and services) to allow the use of negotiable invoices. As Dilma Aranda, senior manager at nuam, explains, payers often prefer cash invoices to maintain control over payment timing and potentially for tax benefits. This creates a power imbalance where suppliers, fearing damage to long-term relationships, may concede to the payer’s demands.
Expert Insight: “Payers have the upper hand. If a supplier wants to maintain a commercial relationship, the payer can simply request cash invoices, effectively delaying or preventing the factoring process.” – Ricardo Gallo, President of Apefac
This preference for cash invoices introduces delays in the factoring process. Unlike credit invoices, which are automatically confirmed through the Sunat platform after eight calendar days, cash invoices require manual registration with Cavali, extending the time to presumed compliance and hindering liquidity for suppliers.
Beyond Payment Delays: Tax Implications and Ignorance
The issue extends beyond simple payment delays. Some companies request cash invoices to avoid scrutiny from the Sunat system when calculating Income Tax (IR). This practice, while potentially beneficial for the payer, creates an unnecessary barrier for suppliers seeking quick access to funds. Furthermore, a lack of awareness among bill issuers about the benefits of factoring and the legal rights surrounding negotiable invoices contributes to the problem.
Did you know? Presumed compliance, a key feature of the Sunat system, automatically validates invoices after eight days if no objections are raised, making them eligible for factoring.
The Microenterprise Gap: A Missed Opportunity
While factoring is gaining traction, it remains largely inaccessible to microenterprises. Factoring companies often view these smaller businesses as higher risk, limiting their access to this crucial financing tool. This represents a significant missed opportunity, as microenterprises constitute a substantial portion of the Peruvian economy and could greatly benefit from improved liquidity.
Factoring with Recourse: Understanding the Risks
The majority of factoring operations in Peru are currently “with recourse,” meaning that the supplier remains responsible for payment if the debtor defaults. This adds an extra layer of risk for suppliers, often requiring them to sign promissory notes as a guarantee. While factoring companies use this approach to mitigate their own risk, it can deter smaller businesses hesitant to take on additional financial obligations.
Looking Ahead: Trends and Opportunities for 2025 and Beyond
Despite the challenges, several trends suggest a positive outlook for factoring in the coming years. The increasing adoption of digital financial solutions and the growing awareness of the benefits of factoring among SMEs are driving demand. However, realizing the full potential of factoring requires a concerted effort to address the existing obstacles.
The Rise of Fintech and Digital Factoring Platforms
Fintech companies are playing an increasingly important role in democratizing access to factoring. Digital platforms streamline the invoice processing and verification process, reducing costs and making factoring more accessible to smaller businesses. These platforms often leverage data analytics to assess risk more accurately, enabling them to offer competitive rates to a wider range of suppliers. AI-powered solutions are also being implemented to automate invoice reconciliation and fraud detection, further enhancing efficiency.
The Need for Regulatory Clarity and Standardization
Clearer regulations and standardized processes are crucial for fostering trust and encouraging wider adoption of factoring. Simplifying the invoice registration process and ensuring consistent enforcement of payment terms would reduce friction and make factoring more attractive to both suppliers and payers.
Focus on Financial Literacy and Education
Educating SMEs about the benefits of factoring and the legal protections available to them is essential. Workshops, online resources, and targeted outreach programs can help dispel misconceptions and empower businesses to make informed decisions about their financing options.
Pro Tip: Suppliers should proactively negotiate factoring terms with payers *before* issuing invoices to avoid potential roadblocks later on.
Frequently Asked Questions
Q: What is factoring and how does it benefit my business?
A: Factoring is a financial transaction where a business sells its accounts receivable (invoices) to a third party (a factor) at a discount in exchange for immediate cash. This improves cash flow, allowing businesses to meet short-term obligations and invest in growth.
Q: What is “factoring with recourse”?
A: In factoring with recourse, the supplier remains liable for the invoice amount if the debtor fails to pay. The factoring company will pursue collection, but ultimately the supplier is responsible for covering the debt.
Q: How can I encourage my payers to accept negotiable invoices?
A: Open communication is key. Explain the benefits of factoring to your payers and emphasize that it doesn’t affect their payment obligations. Highlight the efficiency and transparency of the process.
Q: What role does Sunat play in the factoring process?
A: Sunat’s presumed compliance system automatically validates credit invoices after eight days, making them eligible for factoring. Cash invoices require manual registration, delaying the process.
The future of factoring in Peru hinges on overcoming these challenges and capitalizing on emerging opportunities. By fostering collaboration between financial institutions, regulators, and SMEs, Peru can unlock the full potential of factoring to drive economic growth and empower its businesses. What steps will your business take to leverage factoring for improved financial health in 2025?
