Jon Maycock, Commercial Director, Propel Finance
When it comes to sourcing funding to acquire assets for your company, the end goal is to get the best business outcome. Whether that’s low repayments, flexibility, expertise or the ability to secure funding immediately, it’s important to consider all aspects of a finance solution before making a final decision.
Specific and dedicated finance is always better in practice. It’s tailor-made to a customer’s needs, helping business owners make more informed decisions when it comes to their company finances and assets. It can even be tax advantageous. Most importantly, expert finance companies don’t try and fit customer needs around a facility: they fit the facility’s needs around the customer.
However, how can a business know whether to go down this route – or simply apply for a traditional loan?
Potential pitfalls of a loan
Typically, loans come with a long list of terms and conditions that need to be addressed, such as the provision of quarterly management information. Alongside the huge administrative effort this invariably requires, there’s the question of flexibility; if the business isn’t using all the funds made available, it will still have to pay interest on them. With a loan, businesses are also often required to take out personal guarantees, a key consideration when compared to other forms of finance.
As such, it’s worth exploring the benefits of the asset finance route and how it can help small business owners secure the right kind of funding to meet their needs.
Each and every asset being utilised by a business demands a payback from either generating additional income or by creating extra savings and efficiencies. Asset finance allows businesses to use the latest and most efficient assets available. By offering low-deposit funding, asset finance can help businesses conserve the working capital they otherwise would have invested upfront, allowing scope to invest in other areas of the business. Flexible repayments can be matched to budgets, trading cycles and seasonality. Fixed interest rates across the whole term ensure certainty of budgeting, vital in times of constant change. Importantly, by using specific finance related to the assets concerned, existing credit lines, such as bank overdrafts and loans, remain untouched and are still available for business use.
Additionally, for eventualities where supplementary working capital is needed, there is also the option to refinance existing assets to generate required funds.
The security aspect of asset finance is the key differentiator when it comes to funding options. Unlike a traditional loan, with asset finance, the equipment itself acts as the security against the loan – meaning that personal collateral, such as directors’ houses, are not at risk if the business is unable to make repayments.
Lease over loan
Companies also have the opportunity to lease assets rather than purchase them. This means assets can generate income whilst they are being used, so can effectively start paying for themselves straight away.
As a by-product, leasing eliminates the burden of asset disposal. If the asset belongs to an asset finance provider, this puts the responsibility for disposal in the hands of a third party, with the term of agreement tailored to the anticipated useful life of the asset. And with the potential for rapid rates of corporate change and innovation, leasing provides businesses with the ability to upgrade their assets easily, without the difficulties or expense of changing a loan.
In essence, opting to lease resources removes any ongoing responsibility for funding assets once they have come to the end of their useful economic life.
The benefits of specialist finance
According to the Finance & Leasing Association (FLA), asset finance in new business (primarily leasing and hire purchase) grew by 6% in 2019 to reach a record annual total of £35.7 billion.
Largely, the reason behind this is the specialist sector knowledge and proficiency of asset finance houses. With an in-depth working understanding of the assets themselves, asset financers can use their expert understanding of asset values to provide specialist evaluations; and with widespread industry knowledge, can secure their customers preferential deals from established vendors.
As such, asset financing is about much more than just the cash. By capitalising on the advantages of a relationship-based funding approach, asset financiers can partner with small businesses to boost efficiency, improve performance and secure the ongoing viability of their enterprise.
CAN TECHNICAL INNOVATION HELP FINANCIAL SERVICES FIGHT BACK AGAINST FINANCIAL CRIME?
By Charlie Roberts, Head of Business Development, UK, Ireland & EU at IDnow
It’s no secret that the financial services sector is a top target among cyber criminals. In fact, according to a report from IBM, it retained its top spot as the most targeted sector in 2019.
The consequences of falling victim to an attack can be severe too. It can lead to financial losses and reputational damage as well as loss of customer confidence and therefore sales. One UK financial services firm, for example, was hit by a total loss of $87.9 million.
So, if we consider that the coronavirus crisis continues to drive increased online consumer activity, should financial services be more concerned? Simply put, yes.
We are seeing a significant increase in organisations taking their business online to reach their customers. Banks, for example, in adapting to COVID-19, are offering customers a more convenient way of opening an account given branch visiting restrictions. But while these services offer more choice and ease for customers, it also means that new account fraud is opening up and is becoming a major challenge for organisations to overcome.
Some cyber criminals are even trying to exploit the pandemic as an opportunity for financial crime by posing as trusted organisations like banks and even the World Health Organisation. According to Action Fraud, over £6.2 million has reportedly been lost by UK citizens to coronavirus-related scams. And this figure continues to rise week by week.
The role of innovation
The rise in financial crime shows just how much the financial services sector is in need of technological innovation. We’ve already seen great progress. About half of financial services and insurance firms globally already use Artificial Intelligence (AI), according to Forrester.
It has many use cases too. In a recent report published by The Alan Turing Institute, AI is largely being used for fraud detection and compliance. AI is beneficial because its algorithms can analyse millions of data points to detect fraudulent transactions which could otherwise go unnoticed by humans. What’s more, these AI-driven fraud detection systems can now actively learn and calibrate in response to new potential (or real) security threats.
The report also details some of the ways that financial services companies are exploring AI-based fraud prevention alternatives. It includes the use of AI to increase approvals for genuine transactions and the use of real-time and high volume data to help protect schemes, financial institutions and their customers from fraud and financial crime.
It’s perhaps no wonder that, outside of the technology sector, the financial services industry is the biggest spender on AI services according to The Bank of the Future report from Citi. But there is still some way to go in using technology to combat financial crime.
The identity verification era
Arguably, identity verification is one of the most important processes that technology can help transform – especially as the current crisis continues to drive increased online customer behaviour. In fact, AI and video based identity verification software can provide financial services organisations with a fast, seamless and secure onboarding process that increases conversion rates and customer satisfaction while providing the highest level of security.
Demand for this software in the UK’s financial services sector has already more than doubled since the start of the year, as growth in scams linked to COVID-19 continue to rise.
It’s this technology that will become critical in validating a person’s identity quickly and confidently while limiting the increased risk of fraud for both businesses and consumers.
IDnow’s AutoIdent is one software solution that has this year been experiencing high demand from the financial services industry. Its AI technology can use the camera on a customer’s smartphone to recognise the country and type of ID document without the need for user input. The technology then captures the machine-readable part of the ID document as well as non-machine-readable areas, such as address fields, before automatically checking the optical security features of the ID documents, such as holograms.
With the subsequent biometric video check of the person and “liveness detection”, the identification process is completed for the customer within just a few steps. The system can then decide if the identification is valid, with a reliability that meets compliance requirements.
The threat of financial crime is not going away any time soon and so there is no better way than to fight back with innovation. With the right technology investment, such as in AI identity products, the sector will be in a stronger position to support businesses who have a duty of care to protect their customers from risk of fraud while ensuring they remain resilient during this pandemic.
COULD COVID-19 BE THE CATALYST FOR DIGITAL TRANSFORMATION IN FINANCE?
By Simon Bull, Sales Operations & Business Development Manager at Aqilla
We are all now living in a new ‘normal’ where working from home is no longer a luxurious ‘perk’ of the job, but an essential. In the case of many organisations, the transition to flexible, remote working was successful, albeit slightly bumpy. But there is one department that has found it more challenging to transition to the required standards of remote working – the finance department.
The finance department often gets left behind when it comes to digital transformation largely because it is so heavily regulated. And because of this, one of the biggest problems the finance teams face is that it’s sensitive data will likely be stored on a hardware server on office premises. If you look at how organisations update their software as they grow, it’s usually the finance department lagging far behind, or sometimes forgotten about altogether. This is because finance has complex requirements that can lead to the attitude of: if it ain’t broke, why fix it?
Up until now, most finance teams have overcome the challenges this situation presents, but with the repercussions of the pandemic still very much in play, the complications that go hand-in-hand with on-premise technology have been more noticeable than usual. As a result, COVID-19 is becoming a catalyst for a digital transformation in finance, or more specifically moving finance and accounting software away from traditional on-premise solutions to built-for-cloud services. But what are the advantages of this approach, and what should finance teams be looking for in a built-for-cloud solution?
Cost: The Software-as-a-Service (SaaS) approach that is the basis of many of today’s cloud computing businesses generally offers customers a convenient monthly pay-as-you-go model. Given that all that users need to access the software is a desktop, laptop or smart device and internet connectivity, they can also save money on the server hardware that has previously sat in the corner of the office. Hint: compare pricing from several potential providers to make sure there are no unexpected extras before signing up.
- Service: Good cloud-based providers offer extremely strong levels of customer support and service. It should be very easy to get help quickly and conveniently, and they should be in a position to offer advice, identify problems and fix errors without undue delay. Hint: ask for references from existing customers or look for online reviews to assess their service and support capabilities. Also, carefully check their Service Level Agreement (SLA) to clearly understand where their commitments begin and end.
- Security: Established cloud providers offer high levels of security, data protection and backup services as part of their ‘as-a-Service’ package. Customers benefit from the protection afforded by security specialists whose job it is to prevent breaches and keep data completely secure. Hint: Check their security policies and consider talking to existing customers about their security track record.
- Compliance: Cloud providers specialising in the finance industry should have compliance at the heart of their product set. Hint: Check with potential providers about their levels of compliance and certification, particularly if you have specialised requirements.
- Ease of use: today’s built-for-cloud software services are built for purpose, with many offering a high degree of bespoke capabilities so every user can tailor it to their precise needs. This is in contrast to traditional software packages that can be far less flexible, forcing the user to work in a particular way that might not be ideal. Hint: ask potential providers for an online demonstration to check the way the services work meet your needs.
- Performance: In the early days of cloud computing, finance software was too basic for many professionals to consider. Today, there are many entry-level services, while others offer a comprehensive range of capabilities to precisely fit the needs of professional finance departments. Hint: evaluate the range of capabilities offered by a cloud provider, which should include areas such as: extensive analysis, proper periodic management and business calendars, multi-currency, multilingual and multi-company operation, full VAT handling International coding, tax and language flexibility, automatic reconciliation / bank integration, built-in key performance measurement, advanced search, selection and drill-down, document and image scanning. Hint: compare the features of different providers in advance – if anything important is missing, look elsewhere.
- Regular updates: Software developers find it much easier to update and improve their services when they are delivered online, and can more effectively keep up with finance best practice and changes to rules and regulations. Many also encourage users to suggest improvements or new features which are then provided to customers at no extra cost. Hint: ask providers about how often they update their software and whether you can suggest improvements.
For many businesses, these are compelling reasons to adopt cloud-based finance software services, even in normal circumstances. But considered in the context of the current remote working environment, built-for-cloud finance software can help departments to adapt and capitalise on working from home and match the levels of digital transformation seen across many other key business functions.
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