Trends provide a birds-eye view of perceptions and behaviours of current and potential audiences or markets, and they represent milestones of progress and experimentation.
Most importantly, trends are about people and motivations. They deserve careful consideration – and they matter. Recently, HPD Lendscape commissioned research into receivables financing, in this article we would like to share with you three trends that we have identified gaining momentum in the world of factoring and invoice finance.
The first trend we would like to highlight is enabling true frictionless finance through the widespread adoption of digitalisation to enhance customer journeys and accelerate business processes.
The second key trend will be connecting data sources to provide deep and meaningful data insight.
Finally, our third trend will be how we use enhanced digitalisation and enriched data to deconstruct and reimagine factoring solutions to truly meet the borrower's needs.
We can look at these trends more closely to understand the rationale.
Digitalisation has been a theme for several years, but adoption of any trend requires necessity. The pandemic forced many businesses, happy in their "non-digital" world, to change overnight and embrace digitalisation. Legislators and the emergence of Cloud and API technologies have acted as catalysts for change. We now see an "open" world with open-banking, open-accounting becoming ever more relevant to how businesses and funders interact with each other.
The first trend of our research indicates a focus on removing friction for seamless customer engagements and improving internal efficiency.
The importance of customer journeys, both at the onboarding stage and in life, has become the top agenda item for financial institutions. This could be improving the connection of businesses expectations and the understanding of customers' pain points or identifying gaps in service delivery and customer experience to allow for easier engagement.
With regards to internal efficiencies, gaining a better understanding of your customers allows for the whole business to get a uniform view and deeper understanding of the customer journey. This will improve workplace productivity by streamlining workflows, eliminating waste, and making your business more efficient by simplifying time-consuming tasks.
Minimising friction and accelerating business processes will be more critical than ever in an increasingly competitive space.
Digitalisation leads to more data concerning the businesses being funded. Specifically, data from their accounting or ERP systems and their banking arrangements.
The second trend we see is around sophisticated data insight – getting data is one thing but it needs to be made meaningful to a business and add value to customers.
Data can be enhanced using data cleansing techniques such as clearly identifying the debtors related to the receivables. Linking to credit agencies and other sources of company data can then augment the data to provide a more accurate picture of the accounts receivables. With ESG (Environmental, Social and Governance) gaining momentum, understanding the business of borrowers will become increasingly important.
We can also look at suppliers to the borrower and other data that provides a picture as to the company’s performance. Storing data over time enables trend analysis to identify the trading patterns of the business and to detect any anomalies. This data enables fraud mitigation steps to be put in place, and it provides the foundations for implementing more sophisticated techniques such as machine-based learning and artificial intelligence.
With enhanced digitalisation and a data-driven approach to funding businesses, we can then begin to reimagine financing solutions to meet the true needs of businesses – adding depth to risk management, enhancing and evolving services and solutions, and creating reciprocal value for clients.
Recently, an industry peer shared thoughts on how lenders in the receivables market had traditionally sought to offer a wider variety of products to clients and perhaps they should consider looking deeper into these solutions and whom they serve.
This leads into the third major trend we had seen from our research which was a consistent view of reimagining new lending solutions to meet unique market needs.
Funding can be flexible - which invoices and which debtors? Risk-based pricing can operate at a more granular level to provide a more nuanced financial solution. Value-added services such as outsourced credit control, credit insurance, cash management, e-Invoicing and supplier management can be offered on a more selective basis - with the benefit of extending the lifetime value of borrowers.
Open-Factoring, via APIs, can enable embedded funding solutions to be offered to existing digital commercial networks. Factoring can be effectively networked into the ecosystem of the businesses being supported to reduce friction and optimise the working capital available to grow businesses.
In closing, at HPD Lendscape we believe there is an interesting future ahead, and we will all need to embrace technological innovation to better serve the funding of businesses.
The only constant in our world is change. We are facing change that is becoming faster and faster in many areas.
While no one can predict the future, you can create it.
The evolution of solutions in the receivables finance market shows no signs of slowing down. Frictionless Finance, meaningful data, and the reimagining of solutions are the three major trends we foresee in the future. They will not only bring change to the industry but help you deliver coherent technology investments that enhance your solutions or services and work together cohesively to deliver on your long-term digitalization strategy.
Article written by:
Kevin Day & Iain Gomersall