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USE REAL-TIME INTELLIGENCE TO ALLEVIATE THE TRADE CREDIT RISKS OF BREXIT

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By Michael Feldwick, Head of UK and Ireland at Tinubu Square

 

Nothing could be more certain at the moment than that we face uncertainty. The outcomes of the UK’s exit from the EU will affect every one of us and for businesses, frustratingly, there is a limit to what can be done in the short term.  Alarm bells are ringing across the insurance industry as the outlook for trade credit risk becomes more and more difficult to predict, and the Association of British Insurers has said that ‘a no deal Brexit is an unforgivable act of economic and social self-harm’.

 

Uncertainty reduces pockets of resilience

At the end of January, trade credit insurer Euler Hermes published its latest annual insolvencies report, which indicated that the UK would ‘remain highly vulnerable to a disorderly Brexit’. The company believes there will be a sharp rise in the number of UK business failures in 2019, regardless of whether a Brexit deal is agreed before the March 29 deadline and in an article in GTR, Ana Boata, the company’s European economist said: “Overall, the prolonged high Brexit uncertainty has significantly reduced the pockets of resilience in the economy.”

 

Other insurers agree, with Coface saying the magnitude of the slowdown in growth in 2019 will depend on the final outcomes of Brexit and Atradius, in its January economic update saying: “GDP growth is forecast to rise to 1.7% in 2019, from a historically low growth of 1.3% in 2018. However, this outlook is subject to uncertainty as it is based on the assumption of a smooth Brexit, including a transition agreement.”

 

UK businesses, however, still have to trade, and unless they take the plunge, up-sticks and move overseas, which in itself is a risk, consideration needs to be given to how they can protect themselves amidst the uncertainty.

 

Planning ahead

Caution is the best approach. Against the backdrop of expected increased failures and the growing demand for domestic and export credit insurance, it’s reasonable to expect that rates will increase, so companies need to factor this into their calculations. This goes for receivables finance too, where the demand for non-recourse factoring is likely to increase as an outcome of Brexit uncertainty.  It makes sense for companies to seek the comfort and protection of insurance when they could be faced with the possibility of non-payment of invoices in established markets and new markets at any time but especially now, when future trading conditions are so unclear. After all, the supply chain is only as good as its weakest link and this may not be visible to the seller.

 

It is important to remember that whilst UK traders are at the mercy of the sterling exchange rate, those that export and import have been embracing globalisation with increasing success for years. Many already have processes in place to manage sharp increases in costs and duty and changes to trading regulations. Because exporting is not like turning on a tap, they are prepared to continually assess their positions as they invest in developing markets or consolidate existing ones.

 

Getting power from intelligence

The key to keeping these assessments rooted in reality is intelligence. Insurers and receivables financiers cannot expect to make informed decisions about their level of exposure if they don’t have good aggregation management systems in place that deliver a complete picture, and the same goes for businesses.  Insight into the complete financial ecosystem of a market or a geography can be a hugely powerful tool when it comes to making important decisions about the levels of credit that should be offered.

 

Turning to software solutions that can deliver the level of in-depth intelligence needed to calculate risk in relation to every division, company, sector and country where an organisation has exposure is a good counter-measure for the uncertainties of Brexit.

 

In addition, having a full financial picture delivered in real-time mitigates against the risk of different stakeholders using different systems that don’t talk to each other. In many industries buyers, banks, receivables finance companies, credit insurers and suppliers use widely disparate financial solutions that cannot communicate. This increases exposure to risk because the entire portfolio can so easily be miscalculated or misunderstood.

 

Of course, whilst leveraging dedicated intelligence platforms will transform processes, they should not be viewed as just a quick Brexit-busting approach. Trade credit management solutions will impact not just the finance department, but all operational areas, and these changes need to be part of a strategy to protect the broader business. The net result is that projects planned now, when we are unsure of the Brexit-effect, and later when the dust has settled, will be based on accurate intelligence and this will ensure that risk is managed within the particular parameters that suit the organisation, regardless of the external economic situation.

 

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Finance

THREE STEPS TO ENSURE RECOVERY OF COVID LOANS GOES SMOOTHLY

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In the wake of the pandemic, the government acted quickly to provide financial Covid support packages to help struggling businesses. With the economy now recovering, Mike Hampson, CEO at Bishopsgate Financial explores the range of options available for banks to ensure that those loans are repaid.

 

Since the start of the pandemic, businesses have raised over £75bn[1] from banks and financial markets, through interest-free emergency support schemes. But the harsh reality is that not all loans will be honoured as the economy recuperates.

As a result, banking professionals with client relationship management experience and skills in supporting clients to repay loans in a challenging business environment, will be in high demand.

 

Mike Hampson

Setting up training capabilities for client support post-pandemic

Commercial bankers estimate 60% of new coronavirus scheme loans[4] will default or suffer other repayment issues that will drive previously unseen levels of non-performing loans. It’s a tough balancing act and one that demands careful management of the lending transaction lifecycle, from origination through to collection, recovery, and handling bad debts. Banks no doubt already have frameworks in place to manage these elements, but it’s highly important to make customer interactions as easy as possible and ensure their genuine concern for their customers is clear.

Subsequently, hundreds of workers at major banks including HSBC, NatWest and Metro Bank[5] are understood to be receiving training in how to deal with vulnerable customers and “demonstrate empathy” as the first wave of repayments for coronavirus loans fall due. Staff ‘sensitivity[6] training builds on client-support and workout capabilities, such as improving sensitivity to early-warning systems, developing short-term forbearance solutions and loan modifications, and providing guidance on alternative products.

This approach may further avoid the additional pressure on the UK’s mental health crisis as financial institutions prepare to call in loans issued during the pandemic.

HSBC, which now has 400 staff in its debt collection team,[7] said the aim was to ensure staff had a “consistent understanding of vulnerability” and are “aware of the factors that could make an individual vulnerable” when having repayment conversations with customers.

An executive at another bank said its expanded debt collection team was being trained in “empathy, vulnerability and listening skills”. The individual told The Telegraph: “Ultimately, we don’t want to damage the economy by being overly aggressive.”

A peculiarity of a crisis situation is that customers don’t always know what they will need until that need is pressing. Finding that their bank is prepared to help in unexpected ways will go a long way toward reassuring them.

[2] https://www.law360.com/articles/1355897/

[3] https://www.bishopsgate-financial.com/insights/the-change-perspective/the-change-perspective-2021

[4] https://www.grantthornton.co.uk/insights/how-to-manage-upcoming-non-performing-loans/

[5] https://industryslice.com/NewsLetter/8_33

[6] https://www.telegraph.co.uk/global-health/climate-and-people/covid-19-has-amplified-parallel-pandemic-poor-mental-health/

[7] https://www.msn.com/en-gb/money/other/bank-staff-get-sensitivity-training-before-calling-in-covid-debts/ar-BB1fNMte

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FOUR STEPS TO INTEGRATING INTELLIGENT AUTOMATION IN THE FINANCE DEPARTMENT

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Marieke Saeij, CEO of Visma | Onguard

 

It’s clear that Intelligent Automation (IA) is still very much an emerging technology, with one indication being that is has only been mentioned a handful of times on Twitter since the beginning of 2021. Results from our latest annual FinTech Barometer reveal a mixed picture in terms of awareness, with half of finance professionals having never heard the term before. Whilst this is unsurprising for a technology concept very much in the ‘early adopters’ stage, organisations can stand to gain real benefits from embracing Intelligent Automation now, particular within the finance department. With this in mind, we explore some of these benefits and share a step-by-step best practice to implementing it into business operations.

 

Intelligent Automation ensures a predictable order-to-cash process

Such is the speed of introduction of new technologies that it’s a challenge for businesses to keep pace. As the newest innovation in finance, Intelligent Automation is one that organisations can’t afford to let pass by. It truly takes financial process automation to the next level. In addition to helping maintain a high-quality customer service, it also complements the existing skillset of finance professionals in the industry.

Marieke Saeij

While Robotic Process Automation (RPA) and Big Data are key innovations for the sector, IA can be likened to an additional layer that enhances existing technologies. By combining applications, this layer is capable of independently assessing situations and determining the appropriate process sequence. It can, for example, fully determine the risk of a specific customer, and can also predict at an early stage which invoices will be paid late, or even not at all, ensuring that finance professionals can then plan accordingly. The result is a reliable and predictable order-to-cash process.

 

The four steps to an IA-proof organisation

While the benefits of IA are numerous, implementing the technology can prove complex, although some are already treading the IA path without knowing it. In this instance it’s crucial to become aware and begin the purposeful process to full integration. Below are the four key steps to becoming fully IA-proof.

  1. Exploring the potential: Brainstorm where automation can be applied

Step one is to examine the extent to which automation can help your organisation. Blue sky thinking is the key here. What is the ideal relationship with the customer? What does the ideal order-to-cash process look like? In this phase, involving multiple departments from within the organisation is key, from management to operations. The finance professionals who have the most contact with customers are likely to have the strongest knowledge of which processes they would like to see automated. With no limits to ideas, it’s best to explore all the opportunities in the entire order-to-cash process and describe broadly the potential value to the organisation.

 

  1. Decipher which data and technology is needed

The second step is to map out which data and technology is required. Working with a specialist, either external or from the internal IT department, is beneficial at this stage to see where the opportunities lie. In many cases, off-the-shelf solutions are already readily available to help make the difference, so it pays to do the research and gain advice where possible.

 

  1. Firm up the strategy

With the plan mapped out, it’s time to fit the pieces of the puzzle together. Which technology and accompanying software is proving most valuable? It’s vital at this stage to analyse the results the organisation is achieving from deploying the right technology and software. It’s also important to outline any limitations and emphasising the potential risk of failure. This is the business case and the basis for the elevator pitch that will be presented to internal stakeholders.

 

  1. Draw up the roadmap and start benefitting from agility

The fourth and final step is prioritisation. The roadmap will describe step-by-step how to move from the undesired current situation to the desired end goal. In the first step, choosing a subproject that is relatively easy to achieve will help gain support from other departments within the business, and provide invaluable experience that can be applied to the more complex components that follow later. This agile approach facilitates a learn-by-doing mindset and allows the following steps to be tackled in a smarter and simpler way.

 

Effective preparation is half the battle

Exploring the potential of automation, mapping the required data and technology, establishing the strategy and laying out the roadmap are the four crucial steps to ensure the foundation for Intelligent Automation. Effective preparation and estimating which technology and accompanying software is needed will help to create a streamlined and error-free order-to-cash process. To ultimately save time and costs, empower finance professionals and maintain customer loyalty, the time for Intelligent Automation is now.

 

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