Abstract

Objective: The measures promoted by governments around the world to contain the spread of Covid-19 have caused major disruptions in the procurement and distribution processes of many companies. Restrictions on mobility, delays in the supply chain, shortages, or absence of stock and drastic reductions in customer demand are having a major impact on all economic sectors in the country.
In this context, ensuring healthy finances, taking care of solvency, and having timely resources to get through the crisis is essential for any type of company, to be able to meet short and medium-term commitments, such as the payment of employees and suppliers, as well as the rest of its operations and debts. In the current Covid-19 era, reverse factoring (RF) has become one of the few options available to access working capital and can be an ideal option for small businesses looking for quick access to cash without going into debt or guaranteeing fixed assets to alleviate pressures on their financial cycle.
In this sense, the objective of this paper is to analyze whether RF alone could provide the sufficient liquidity that SMEs need during the time that the containment measures are in place, to be able to meet their operating expenses.

Methods: To this end, a qualitative study was carried out through in-depth interviews with ten financial institutions (FIs) in Mexico that account for between 60% and 80% of the factoring volume operating in the country.

Results: The results of this analysis highlight key elements that allow proposing a combined “Working Capital Loan – RF” scheme attached to one another, such as legal security, efficient client information systems, reduction of requirements to initiate operations or ease of operation and simplification of procedures.

Limitations: The implications of this proposal are far-reaching since, through such scheme, FIs, together with public administrations, can actively support the rescue of more than 120 thousand SMEs and protect up to 5.3 million formal jobs, within a robust legal framework, thus contributing to the economy and boosting the bankarization of SMEs on a large scale throughout the country.

Practical implications: The originality of this research lies in the proposal to mitigate the effects of Covid-19 that emerges from the analysis of a combined scheme of credit together with RF, framed in the dynamics of buyer-supplier relationships. This work considers aspects of cooperation and a collaborative vision of supply chain finance that go beyond the traditional literature, which has focused on operational aspects. These aspects are crucial to the success of the proposal presented. This study also integrates the perspectives of all players involved in a RF operation, namely buyers, suppliers, FIs, and public administrations.