December 7, 2020
To achieve success in the medium to long term, decision makers in financial services will need to decide how they are going to adopt new technology to compete. That’s one of the conclusions from a report by PwC called ‘Financial Services Technology 2020 and Beyond: Embracing Disruption’.
Funding providers, banks, institutional investors, insurers and corporates who operate invoice-backed working capital programmes could all become more efficient and gain a major advantage, if they are among the early adopters of the latest technology.
At present, many financial institutions rely on spreadsheets and manual processes and reporting for oversight, control and certainty when operating working capital programmes. This approach has been adequate for well-performing portfolios in a stable economic environment, with no imminent shift in trading patterns. However, a stable environment can mask the operational risks which will be exposed as we find out way through the largest ever global recession.
We have seen programmes where receivables have been duplicated and invoices funded more than once. There are instances where finance teams have miscalculated invoice totals and been making decisions with insufficient control over the risk profile of a portfolio.
Quite simply, manual analysis is probably insufficient at the best of times and certainly cannot cope with the pace of change we are likely to see over the coming years as the global economy adjusts and we enter a period of great volatility. Advanced, up to date analytics will be critical to minimising risk, adding control and optimising the portfolio’s performance.
The cost of inertia
Organisations which fail to invest in new technology or collaborate with fintech providers could be left behind by those who are changing the way they work. As an example, in 2019 Accenture produced a paper called ‘Trade Finance and Digitalisation – Winning at a Changing Game’. The paper focused on the relationship between funders and corporates and, before the pandemic, Accenture forecasted that trade flows were due to reach $24trillion. Trade finance, they said, would remain ‘a largely paper based, manual business’, in spite of technological advances bringing ‘significant opportunities for cost cutting’. This could also help funders ‘with their relative inability to gauge risk cost-effectively’.
How technology will support success
Many funders are already beginning to reassess and modernise their analytics, and global corporations are trying to increase working capital and cashflow. Funders are looking at how they can lend with confidence in a rapidly changing market, where the demand for new programmes will increase.
By employing the latest technology, it is possible to gain a rapid evaluation of a new programme. The analysis of receivables data can be automated and updated live with every new piece of data received. This speed of operation provides great control and enables identification of differences in trading patterns and behaviour, ensuring that changes in risk and performance are easily identified. Then, dependant on the programme requirements, the pool of eligible receivables can be funded according to that risk, optimising funding in the programme whilst effectively protecting the funders..
In the US and across Europe we have seen how technology can add security and value, and produce better returns for everyone involved in financing programmes. You can read more about how in our other articles on How Lenders Can Unlock The Opportunity Of Receivables-Based Finance and Supply Chain Finance: Helping Suppliers Survive A Storm
For over 15 years we’ve been producing technology to work with invoice data for funding and insurance. Our platform has been designed around a process which evaluates programmes, aims to fulfil the original business case, protect the programme when it’s live and establish foundations for the programme’s future growth. Technology brings control and simplifies the working together of a range of stakeholders, such as funders, insurers and corporates.
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