4 November 2019
The receivables finance market is subject to increasing competitive pressure due to a growing market volume for innovative products. At the same time, alternative finance becomes more and more attractive to a wider range of companies, for example for European SMEs.
Against the background of resulting low margins and potentially higher risks when offering services to a wider range of clients, crucial points for being competitive are efficient, flexible business processes and fast decisions based on correct and reliable information.
Several points of leverage can be identified and, by use of technology, optimised. Great potential for efficiency, for example, lies in the management of (debtor) master data. This is nothing new, but there is still much work to do. Master data is often transmitted via various channels, e.g. in the form of Excel lists, which are sent by e-mail or transmitted via online portals. The quality of transmitted data varies; sometimes it is incomplete, or important information is wrong or even missing. The identification of new debtors and the determination as to whether they really exist is therefore not easily possible. The validation of the address, however, is a necessary step to avoid fraud before the actual purchase of receivables. Furthermore, the identification is the basis for the subsequent credit assessment, since only for debtors who have been clearly identified relevant information and, if necessary, commercial credit insurance can be obtained.
A further challenge is the comparison of the uncleaned debtor master data of a (new) client with the existing debtor master data of other clients. In this case it is necessary to identify overlaps with the already existing data in order to recognize duplicates in the transferred data. The duplicate check is also essential from a risk point of view. One risk, for example, is that limits for identical debtors are assigned several times if they occur several times in the system with different customer numbers. As a result, the risk of bad debt losses in the overall portfolio is increased on the one hand and, on the other, the effort and costs for carrying out creditworthiness checks also increase.
A further potential for optimisation lies in the automation of risk and limit management. In an integrated solution, for example, the client enters his limit requests in a portal and uploads the receivables to be sold. A decision based on the sales inquiry of the follow-up customer has to be made within a few seconds and to be displayed to the customer in the portal immediately after the inquiry.
In addition, efficient solutions are not only able to decide on individual receivables, but also enable the evaluation and decision of receivables portfolios that have been transferred from the portal to the risk management system.
The decision-making systems used should always apply the rules defined in a transparent and comprehensible manner to every type of decision and furthermore document this application. This documentation serves at the same time the acceptance of the users and proof to examining persons. These persons are to be answered e.g. the following questions: Why could the limit not be assigned? When was the compliance check carried out?
The documentation of the decision paths is ideally done graphically in a standardized and easy to understand way - e.g. as BPMN. This type of presentation creates trust in the system and makes it possible to change decision-making processes very strikingly without having to read long, difficult to understand sets of rules.
Every decision, both the input parameters of the decision and the decision itself must be filed in a comprehensible way. Over the years, this automatically creates a database that can also be used for simulating new rules and regulations or for stress tests.
In addition to the efficient structuring of operational business, the fulfilment of regulatory requirements also presents a significant challenge. Companies in the invoice finance industry are subject to specific legal requirements in the area of KYC. If the legal requirements are not met, considerable monetary and non-monetary ("naming and shaming") sanctions may be imposed. In addition to the regulatory legislation, self-imposed requirements and company-internal guidelines are of particular importance. These include, for example, internal block lists. The processes implicated in these requirements are not to be solved efficiently without IT support.
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