so all software providers needed to bring solutions to their clients when it comes to handling these reporting needs.
History The history of commercial finance in Europe revolves around factoring. There exist different forms of factoring across the continent. For example, German law requires that the factoring company must prove they bought the invoices. Therefore, German factoring operations requires software that tracks individual invoices. Now there is no such requirement in Ireland. Irish finance providers track sales ledgers at the total level. Irish factoring business do bulk invoice discounting. In Spain they do forfeiting, a form of reverse factoring. Asset-based lending (ABL) recently arrived in Europe. By definition ABL is a
combination of bulk invoice discounting and collateral backed by other assets, such as stock, equipment, and other. Since European software had to accommodate the broad range of factoring practices it was designed with flexibility in service offerings in mind. That same software can readily evolve to an ABL platform while maintaining the factoring capabilities. The factoring business across the America has every imaginable variance of the invoice backed finance scenario. But in the US the ABL providers generally evolved separately from the factoring industry. Therefore, the factoring software in America evolved separately from the ABL software. Many finance companies in the US offer both factoring and ABL products, but these transactions are monitored on separate systems.
Conclusion
In many respects European-based software has an advantage to the buyer because of the unique culture of its birth.
Tony Smith, CEO, HPD Software, LLC, tel: +1 847 571 4604,
e-mail:
tony.smith@
hpdsoftware.com
RiskFactor Solutions Making a difference
iskFactor is a unique software solution dedicated to supporting risk management within commercial finance companies. With over 25 years’ experience we concentrate solely on helping our customers to protect themselves from the risks of client fraud and bad debts.
R The challenge
Commercial finance represents a significant challenge in terms of risk management. Its unique selling proposition in
supporting growing businesses with relatively weak balance sheets is very strong. This has never been truer than at present when the allure of property has yet again proven to be deceptive and banks
have to significantly write down values. However, it also means that it creates numerous challenges in terms of risk management.
No other form of lending has such a dynamic collateral base. What can appear to be a good quality sales ledger when you first take on a client – nice clean financeable product, good spread of debtors of a reasonable quality, good management systems and controls – can all change – incredibly rapidly. Your collateral and security can literally evaporate in front of your eyes. The major risk is that the client is in control of the information and can easily manipulate it to increase funding. An astute client understands the control mechanisms that you have in place
Business Money
and sends you pieces of paper or data files which comply with your risk management rules but which are totally fraudulent. The traditional controls such as dilution and disapproval/ineligible amounts can actually reduce while the client is committing fraud.
It is easy to issue invoices prior to the goods or services being completely fulfilled, change invoice dates, adjust invoice values and, most seriously, fabricate fresh air invoices and bank debtor payments directly. With a relatively short client life, the
churn in a portfolio can be anything up to 40% per annum meaning that not only is each individual client subject to dramatic change, but the profile and mix of the portfolio changes rapidly as well.
November/December 2010 15
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