How EInvoicing is Turning Invoices into Currencies in Latam

Kenneth Bengtsson, CEO at Efact, gave an interesting presentation at Exchange Summit Orlando on Peru’s efactoring solution that has recently become law (Law #30308, Peruvian Factoring Law, approved March 2015).  In going beyond a simple efactoring solution, what the Peru Government did was to enable a commercial invoice to become a true tradeable asset – so an invoice which states you owe me $X can be traded just like a share of stock.  The Government has developed a central securities depository where the invoice is registered, similar to the U.S. Depository Trust Company.  In this case it is called CAVALI.  Electronic invoices are validated real time with the Tax Regulator (SUNAT) to prevent fraud.  This is important, as it eliminates double finance.  Think of this as the UCC lien process on steroids.

What makes this all possible is that Peru, like many other Latam countries, requires invoices to be certified before shipment. This is done to ensure no tax avoidance in the B2B and B2G market.

In essence, the government is trying to develop their own commercial paper market backed by invoices. What’s interesting about this solution is that these invoices are not yet approved by the obligor or buyer.  But here’s the catch in Peru, once the buyer is notified of the invoice being certified, they have 8 days to contest.  If they don’t, they are liable to pay.

There are now firms involved in scoring these invoices to determine their validity and credit risk. Efact is one of them, and Ken outlined four key elements of credit scoring individual invoices in his talk:

  1. Invoicing data – is there a sufficient amount of invoicing data to do a transactional score?
  2. Financing history – is there a history of invoice finance available?
  3. Trading Partner relation- Is there an established relationship?
  4. Transaction – Does the invoice (amount, payment terms, regularity) look normal, or does it deviate from established invoicing patterns?

The developments in Latam are worth watching, as more small businesses will have an opportunity to finance invoices than ever before. Chile is further ahead with this experiment, with over 15K companies using invoice financing.  The recent news of Invoiceware and Sovos and what they have planned around e-audits and tax compliance and how that will impact as well should be interesting to follow.

Stay tuned, as companies like Aztec Exchange, GoSocket, and others look to make more noise as the factoring market moves much more online in South America!

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First Voice

  1. Christopher Bosler:

    Hi David. This is an interesting example of some process going on in emerging markets, related to working capital financing and SMEs. The Peruvian case you talked about in this note, is a replica of the Chilean case, but improved in several ways. Despite of the fact that Chile has a strong invoice law, that gives enforceability to receivables, it still has some loopholes where payers usually take advantages to discuss the later payment. Perú established a period of 8 days to accept o refuse the invoice. If there is no news from the payer, the invoice gets its enforceability. The other good thing Perú has, is the possibility to register and deposit electronic invoices through the central securities deposit (CAVALI), allowing high liquidity for future buyers, most of all institutional investors. Both policies have been recently imposed in Chile after a bill was approved, leveraging factoring market in Chile, from banks to exchange. Its important to say also that Chile has the unique regulated receivables exchange in the world (, business model that would be replicated in Perú in the years to come. Regards, Christopher Bosler, CEO, Chilean Commodities Exchange (Bolsa de Productos de Chile).

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