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New Technologies Hold the Key to Smarter Asset-Based Lending

March 05, 2014, 07:00 AM
Related: Asset Based

Phenomenal technological changes are being thrown at us at an ever-increasing rate. Some days, it’s downright scary. I have two small children, so for the next 15 years I get to worry about Facebook, Mybook, Theirbook, GPS stalking, cyber bullies and whatever else the next great technology delivers.

Thank goodness there’s an upside to all this.

Families are better connected — think of the soldier abroad or the executive on a business trip able to Skype with her kids. Our citizens are better informed — breaking news is delivered in real time, often from the actual participants. And our cities are becoming more efficient by the day — thousands of sensors installed throughout our infrastructure are collecting huge volumes of data related to traffic, weather, crime, and more for faster response to issues and superior planning capabilities.

We see the same sort of thing happening with asset-based lending.

The Way We Were

Asset-based lenders have always had access to large amounts of data. Until recently, though, most of those facts and figures have been trapped on paper.

Don’t get me wrong — I love the green bar paper as much as the next lender, and the multi-colored highlighters, and especially the desktop calculator that makes the cool noise every time you press the big button. These have been the tools of my trade since I first crunched a number. I’ll miss them. I will.

Not really. Truth be told, data trapped on paper quickly becomes more data than a human being can handle. There is a better way.

Enter New ABL Technologies

Automation is the most important factor in the new ABL technology equation. Allowing computers, rather than people, to comb through reports speeds things considerably and makes possible many new capabilities, including:

Automated Collateral Updates

The newest ABL lending tools can update collateral values any time clients submit reports. Imagine being able to review the borrowing base certificate, evaluate the aging, and post new values automatically each time a client submits a report — and those reports can now be submitted by clients via the Internet. Yes, the lender still needs to double check the figures, but those 20 or 30 minutes previously spent balancing reports, signing off on hardcopies, and re-keying information can now be accomplished with a few clicks of the mouse.

Automated Ineligibles Calculation

Ineligibles are an important way to reduce risk, though they have never been the simplest or the quickest to calculate. Flipping through possibly hundreds of pages of invoices and calculating one type of ineligible at a time naturally results in increased human error and, by extension, increased risk. That spells increased costs.

Plus, let’s be real — in all of that paper, are you truly looking at the collateral?

Can you really check every invoice date, due date, and invoice amount? Are you sure the aging reports are accurate? Paper and spreadsheets simply don’t present information in a format that’s conducive to that sort of analysis. Things — important things — fall through the cracks.

With the newest ABL technologies, not only can you quickly and accurately check every date and amount in a client’s A/R, you can easily drill down to the detail level on any invoice submitted for a closer look. That’s real time, practical risk assessment.

Furthermore, because calculating ineligibles by hand is such a painstaking process, lenders have typically resorted to it only when the perceived risk is high. But why should lenders feel they have to balance increased portfolio risk against departmental inefficiencies before updating the collateral and calculating ineligibles? And why should they let previously quiet accounts go un-scrutinized when it’s so easy to check?

Now, thanks to automation, lenders can calculate ineligibles automatically in a matter of seconds. Plus, because the process is so efficient, it can be used for all accounts, not just the riskiest!

Today’s ABL automation tools can update collaterals and calculate ineligibles in less time than it previously took to update the collaterals alone. In fact, it’s now quite practical for lenders to evaluate collateral more frequently than the traditional monthly inspection, whether that is weekly, daily, or with each and every request for funding that clients make.

Detecting Indirect Exposure

Not only can new ABL technologies make day-to-day operations run smoother and faster, they can enable you to look at your portfolio in ways you never could before.

Do you remember when American Airlines filed for Chapter 7? How much time did you spend poring over client reports, hunting down that company name in every ream of hard copy and every client spreadsheet to determine your indirect exposure? Did you think to look for “AA,” “AMR,” and “Amer Air” as well? This is only one example of a process that took days, if not weeks, to perform just a few years ago. Now it takes minutes.

Changes in technology are profoundly affecting our professional lives. Doing things the way we’ve always done them no longer cuts it—our survival depends on our ability to not only accept change, but to capitalize on it to make faster and better lending decisions.

Timothy Thornton
Product Manager | Bayside Business Solutions, Inc.
Timothy Thornton is a CADENCE for ABL product manager at Bayside Business Solution, Inc. With more than 13 years experience in asset based-lending at a midsized regional bank, his past roles include collateral analyst, field examiner, account executive and senior technical analyst. In his current position at Bayside, he works directly with the development staff, expanding the current suite of software solutions focused on the asset-based lending industry.
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