Digital Transformation in Receivables Finance – The Fundamental Importance of Debtor Party Management
Written by Paul Bower
As we move ever deeper into the digital age, lenders and their customers are awash with data. Our ability to access more information about our customers in real time is greater than it has ever been. Technology changes and a shift in business culture now mean that customers are more inclined to share their information with lenders in the expectation of access to better suited products and value-added services. Open banking, analytics and payment tracking information sit alongside the mine of information on shadow sales ledgers and commercial banking databases. Technology providers offer integrated solutions accessible through APIs, giving the potential for a vast array of information exchange. AI looms large in the background.
The data race is disrupting the working capital finance landscape. New digitally native challengers are entering the market and winning. The opportunities are there for lenders who are ready to embrace these changes. Yet so many institutions are struggling to make the best of the information at their disposal and are stuck at the theoretical stage of transformation. What is holding lenders back and what practical steps can those in the Receivables Finance world take to make sure they aren’t left behind?
Amidst all the disruption, some fundamentals remain true. Data without context is confusing. More information doesn’t mean better information, clearer insight or better decisions. In fact, an overload of data often results in worse outcomes for lenders and customers. Being able to see the “Wood for the Trees” is critical to managing the transition. Businesses that invest in the right building blocks are able to set the foundation for key digital transformation and all the potential that offers.
So where to start?
For Receivables Finance (RF) based lenders, the most important information is customer Accounts Receivable data and being clear on who the underlying debtor parties are that are transacting with your customers– in other words “Knowing Your Customer’s Customer.”
Given how much information is now transferred to lenders in real time, this should be simple, right? Well, as anyone who has worked in the RF industry for any length of time knows, this is far from straightforward in practice. Businesses do not always keep accurate legally specific CRM information on who they are trading with. Companies may be recorded under alternate trading style names or have multiple branches or subdivisions, and legal ownership and group structures change all the time. The benefits of having detailed customer information are great, but it is vital for lenders to step through this and provide clarity on who is really who in the debtor database. Building in an effective Party Matching utility into in-house systems is therefore crucial.
Once a lender can properly capture the true legal exposures, that’s when the insight and value add can start: reporting back to customers on positions they didn’t know they had, being able to provide additional credit information and analysis on those parties, offering suggestions on prospects, and working with the Credit Insurance market to get the best Credit Risk coverage based on true and accurate exposures all rely on this firm base of clarity. Having the right building blocks in place is central to the insight that lenders can offer their customers and for their own effective risk management.
Tracking of debtor Parties can vary country by country with some, such as the UK, having readily accessible Company Registration information available. That is not always the case internationally though, and even where it is, the process of matching and confirming on company names or registration numbers can be time consuming. Whilst there are various sources of information to help carry out this matching exercise, the difficulty is in automating the process and bringing it right into the heart of your lending operation without creating manual work or delays for your staff or customers.
The good news is that there are some great solutions out there with providers that really understand the needs of the industry and can help guide lenders through the transition. Finding the right partner who is prepared to work with you and your stakeholders on your overall needs is key to success.
FGI T.R.U.S.T. ™ is built by and for the Receivables Finance Credit Risk market. Using the power of API integration and the information we receive as part of our best-in-class Credit Insurance integration; we do the heavy lifting and present information back to you and your customers in a contextually appropriate and realizable format. Automatically matching to the correct legal entity and storing records for future reference. True Debtor Party integrity, automated and painless. Insight and clarity just when you need it.
For more information or to arrange a consultation on what we can offer you, contact Paul Bower, pbower@fgiww.com
This article is for informational purposes only and does not constitute professional advice. Investments always have the potential for loss. FGI, including its affiliates, makes no warranties about the accuracy or the completeness of this information and disclaims any liability (including direct, indirect or consequential loss or damage) related to the materials. Please consult your financial professional for advice relating to your circumstances and refer to our full terms and conditions.