LocationsDriving Digital Financial Inclusion: The Untapped Potential of Fintech Factoring in Colombia
6 de Febrero de 2025
Blog written by: Lina Fernández (Head of Exploration Accelerator LAB Colombia) and Juan David Ordonez (Private Sector and Innovation Specialist UNDP Colombia)
Setting the scene: the need of Fintech Factoring in Colombia
Access to finance remains a major hurdle for micro, small, and medium-sized enterprises (MSMEs) in Colombia and throughout Latin America. According to the International Finance Corporation (IFC), there is an estimated USD 1.2 trillion financing gap for MSMEs in the region, affecting nearly 40% of these businesses. Meanwhile, in 135 countries worldwide, access to finance stands out as the single largest obstacle for MSME development (World Bank - IFC, 2022). Colombia is no exception: 45% of its MSMEs are totally or partially underserved in terms of formal financing (DNP-BID, 2023), and many rely on informal loans or personal funds, further weakening their competitiveness and stability.
Despite this, MSMEs remain core drivers of economic growth, generating 79% of employment and contributing 40% of the country’s GDP with over 5.4 million businesses (DNP, 2023). Yet, the adoption of factoring in Colombia remains notably low: only 3% of MSMEs use factoring or leasing (ANIF, 2020), and 76% of entrepreneurs either do not know what factoring is or have never used it (DNP, 2020). When compared regionally, factoring represents just 1.9% of Colombia’s GDP, while in Chile it reaches 9.9% and in Peru 5.9% (Corficolombiana, 2019). The lack of knowledge, together with limited credit histories and insufficient collateral, positions Colombian MSMEs as high-risk clients in the eyes of traditional lenders, deepening the overall challenge of securing working capital.
Amid these constraints, fintech factoring emerges as a powerful alternative to bridge the financing gap by converting accounts receivable into immediate liquidity. This can offer MSMEs more flexible and timely funding—covering short-term cash flow needs while also supporting sustainable growth. However, as we have observed through on-the-ground research, this tool remains widely underused in Colombia due to multiple cultural, regulatory, and informational barriers.
The experiment: methodological approach, partners and initial hypothesis
Against this backdrop, the UNDP Colombia Accelerator Lab undertook an experiment to discover why electronic factoring—a tool that can swiftly convert receivables into liquidity—remains underused and how best to eliminate the barriers to its adoption. We combined various research techniques—ranging from focus groups and stakeholder interviews to data analysis and design-thinking sessions—to build our hypotheses. Through this blended approach, we established our three initial assumptions:
Hypothesis 1 (Demand): SMEs do not access fintech factoring due to a lack of knowledge about the product. The lack of information on how factoring works and its benefits limits adoption.
Hypothesis 2 (Demand): The process of accessing fintech factoring is perceived as complex and costly for SMEs without experience. The lack of knowledge about the factoring process creates administrative and financial barriers.
Hypothesis 3 (Supply): Anchor companies hinder the free circulation of invoices, restricting the use of fintech factoring.
During the implementation of the experiment, we designed a series of activities to further validate our assumptions, which included training programs, hands-on guidance for participating businesses, advisory support, and focus groups with anchor companies. These interventions allowed us to gauge how MSMEs reacted to real-world factoring scenarios, assess the perceived difficulty of implementing these solutions, and identify possible resistance points within the supply chain.
We opted for a quasi-experimental study with a control group and two treatment groups. The main objective was to analyze the impact of both the lack of awareness and the perceived complexities of the factoring process on its uptake, comparing outcomes among the different groups. A non-probabilistic convenience sampling strategy was used. This approach suited the high variability and large size of our target population (MSMEs) and allowed more practical access for the research team. The target population was drawn from the Supplier Development Program (PDP) of the ReactivAcción project, funded by USAID. This program provided a preselected group of businesses meeting specific implementation requirements, ensuring a similar profile and baseline across all participating enterprises.
Results and relevant findings: untapping initial hypothesis
Over several months, we collaborated with key fintech players—including Colombia Fintech, Finaktiva, Liquitech, and Exponential—alongside regulatory bodies such as the Ministry of Finance and Public Credit, the Finance Superintendence, the Regulatory Financial Unit, the National Tax and Customs Directorate (DIAN), and the Central Bank. Our workshops, focus groups, and interviews revealed that around 85% of participating MSMEs gained greater clarity on the workings of electronic factoring post-training, and 60% expressed an intention to adopt it within a year. Yet, despite these promising figures, turnout for the training sessions was lower than expected, reflecting persistent skepticism or indifference toward nontraditional financing.
Several MSMEs cited concerns about factoring’s perceived complexity, the administrative workload, and possible repercussions for their relationships with large clients. We also documented cases in which, although the law grants invoices full negotiable status, anchor companies demanded extra steps or withheld approvals, effectively stalling the factoring process. Nonetheless, when MSMEs received hands-on guidance—from demystifying costs to clarifying document handling—many became more receptive to factoring as a viable tool for improving cash flow.
The most relevant insights of the experiment include:
Persistent Lack of Awareness: Many SMEs demonstrated limited understanding of electronic factoring, including its benefits and operational details. Low attendance at training sessions indicated a preference for traditional financing methods, suggesting a strong need for extended observation periods and follow-up sessions to track post-training perceptions.
Complexity and Cost Concerns: SMEs cited the perceived administrative burden and relatively high costs as disincentives to adopt factoring. Internal process adjustments and worries about how factoring might affect their liquidity image with clients were common pain points, emphasizing the need for clearer guidance on costs and more transparent comparisons with traditional credit options.
Supply-Side Barriers: Anchor companies often introduced obstacles by requiring additional steps or withholding approvals, effectively undermining invoice circulation. Some fintech providers also faced constraints, such as risk policies that prevented them from working with anchor companies experiencing financial instability, reducing the overall reach and scalability of factoring solutions.
Operational Hurdles for Adoption: Nearly 70% of assigned suppliers proved hard to contact, delaying onboarding and conversion to the factoring program. In many cases, suppliers lacked decision-making authority, complicating processes and driving up transaction costs. Collectively, these factors underscored the importance of tailoring solutions to the practical realities of SMEs, including simplified concepts, more hands-on support, and robust measures to foster trust in both the fintech providers and the factoring model itself.
Challenges and lessons learned
The implementation of the experiment faced several challenges that influenced the accuracy and scope of the results. First, the reliance on a non-probabilistic sampling method constrained the representativeness of the sample, limiting the ability to generalize the findings. Additionally, the non-random assignment of training and support introduced biases, complicating the causal analysis between the interventions and observed outcomes. For instance, SMEs were allowed to choose whether to participate in the training and support sessions, which may have skewed results due to internal factors like their interest in factoring or their administrative capacity. Moreover, the assignment of specific Fintechs to different SME groups reduced consistency in the support provided, making it challenging to equitably compare the treatment and control groups.
In terms of lessons learned, the experiment underscored the importance of adopting a more robust methodological design in future studies to effectively evaluate alternative financing mechanisms. Key lessons included the necessity of ensuring representative sample selection and random treatment assignment to reduce biases and enhance the external validity of the findings. Feedback from SMEs proved invaluable, as participants appreciated learning about fintech factoring as a viable financing tool but highlighted the need for greater clarity on associated costs and support in adapting their internal processes. These insights will inform the refinement of public policy recommendations that Colombia Fintech will present to the UNDP, aiming to promote the adoption of factoring in the SME sector and improve their access to financing on more favorable terms.
Looking ahead: public policy recommendations and handover process
We shared these findings at a final workshop with both public- and private-sector representatives, introducing policy recommendations that emphasize robust training programs and reinforced sanctions for non-compliant practices. We also underscored the need to build greater confidence in fintech, for example by sharing success stories from businesses that have leveraged factoring to stabilize their cash flow and strengthen relationships with larger clients.
The most relevant public policy recommendations include:
Strengthen sanctions against practices that hinder free invoice circulation
Issue: Anchor companies delay or block invoice circulation, e.g., by not paying factors or imposing extra requirements.
Recommendation: Enforce oversight and penalties for non-compliant behavior, supported by regular guidelines from competition authorities.
Expected Effect: A more transparent environment that ensures invoices circulate freely, enabling quicker factoring uptake.
Automate critical events in RADIAN (official information system managed by the National Tax and Customs Directorate (DIAN) responsible of the cycle of electronic invoices) to reduce frictions
Issue: Delays in registering invoices and goods/services disrupt invoice negotiation and transfer.
Recommendation: Merge the events of invoice reception, goods acceptance, and invoice acceptance into one step, minimizing payer discretion.
Expected Effect: Streamlined processes that enable faster, more secure factoring transactions for both buyers and suppliers.
Implement simplified due diligence for Fintechs
Issue: Long, complicated due diligence requirements discourage anchor companies from working with factoring Fintechs.
Recommendation: Adopt risk-based, flexible procedures, leveraging data reported by factoring firms in RADIAN.
Expected Effect: Reduced administrative hurdles and uncertainty, facilitating broader market development for factoring solutions.
Looking ahead, the UNDP Colombia Accelerator Lab will continue to refine these strategies in collaboration with Colombia Fintech, USAID Colombia, national government and other stakeholders. By tackling the cultural, regulatory, and informational barriers exposed in our research, we aim to empower thousands of MSMEs to harness a financing tool with the potential to significantly boost their liquidity and resilience—ultimately contributing to a more inclusive and sustainable economic development path in Colombia.