Not every venture turns out as you hoped. This is not only inevitable, but it provides immensely valuable learning opportunities.
Before Fundiment’s pivot to operating our platform for others, we learned the hard way how challenging it is to run a successful factoring business. Our business was incredibly efficient at buying invoices, managing payouts, and collecting payments. But lending is, above all else, about having a deep understanding of risk, and ensuring that every part of the lending lifecycle is generating insight which links back to the credit relationship.
The most successful lenders understand that risk governance is their core, and allow technology to take care of ensuring all of the operational complexity around this core is taken care of.
Risk management is at the heart of your business success
At the heart of any factoring business is the underwriter. Their role is to assess not just the creditworthiness of the invoice seller but also the payers behind those invoices, where the true credit risk lies. This is why having an empowered underwriter, supported by a comprehensive risk governance framework, is critical. The underwriter needs access to real-time data and insights to make informed decisions, ensuring that the portfolio as a whole remains sustainable even in the face of unexpected events.
In our experience, we quickly realised that we needed reliable credit insights on the relationships our clients had with each of their customers, and that our technology needed to automate the integration of these insights into our credit processes.
Technology provides the efficient machine behind focused credit operations
Technology is the engine that drives efficiency in factoring. It provides underwriters with the data they need, but it also plays a crucial role in establishing and maintaining customer relationships. A streamlined digital experience not only enhances customer satisfaction but also allows the business to operate with minimal manual intervention. By reducing laborious touch-points, factoring companies can maintain lean operations, resulting in a more financially viable business model. Focusing on digitalising every step of the client and transaction lifecycle enables more budget to be allocated to the core work of managing credit.
Collections drive real-time customer insights
A strong collections team is essential, but their work shouldn’t be siloed. The success of the collections process is closely tied to ongoing portfolio monitoring and underwriting. Technology plays a vital role here, ensuring that insights from collections activities are seamlessly shared with underwriters and risk managers. This interconnected approach allows for a more dynamic view of the portfolio’s health, enabling faster responses to emerging risks and helping the business maintain strong relationships with customers. By linking collections data with underwriting decisions, a factoring business can more accurately assess the true risk of its portfolio and adjust strategies accordingly.
Data supports every step of the lending lifecycle
Something we got right when running our factoring business was integrations. By integrating with banks, accounting systems, and funding providers, factoring companies gain real-time visibility into customer performance, allowing underwriters to make more informed decisions. These integrations don’t just stop at underwriting; they also extend to the financial operations of the business. For example, automated reconciliation with banks simplifies the collections process, while partnerships with insurance providers offer an added layer of protection by allowing portfolios to be automatically re-insured against credit risk. This connected ecosystem creates transparency, reduces manual errors, and ensures that all stakeholders have access to the information they need to make well-informed decisions.
Data also plays a critical role in managing fraud risk, which is the largest risk in factoring operations. We integrated several alternative data sources to support an automated fraud score on all customers. For example, our web domain analytics feature provides insights into the age and trustworthiness of a website or email domain to support the fraud detection process.
Running a factoring business is about more than just finance; it’s about bringing together digitalised experiences, integrations, and data to support underwriting and credit operations.
By placing technology at the core, factoring companies can build efficient, scalable operations with a focus on risk. The ability to offer a seamless digital experience, supported by real-time data and insights, not only helps mitigate risk but also sets the business apart in a competitive market. It’s this combination of strong governance, integrated technology, and a customer-centric approach that defines the path to success in the world of factoring.