How to automate factoring in banks and financial institutions?

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Factoring financing is an option many commercial lenders expand their offering with.

Factoring has a high potential to create a mutually beneficial situation for all parties involved.

This type of financing can relieve SMEs from financial pressure and build an opportunity to postpone payments. Their contractors benefit from improved turnover. While the financial businesses can have their piece of cake from this highly valuable tool.

Not so long ago, the popularity of factoring contracts declined for a while, but then it got the second breath by appearing in the updated online version. As of today, many financial service providers successfully implement this secured short-term diversification tool to improve their profits. The factoring turnover in Europe reached €1.7 trillion and is actively growing in the past few years, except for 2020, according to FCI. The 2022-2024 market predictions are very optimistic.

What are the benefits of factoring automation?

The primary tasks software for factoring can solve are: speeding up operations and decreasing the operational costs. Reputable software vendors can demonstrate how their software can serve these two goals. For example, it may include fast and effective online document management, reduced or eliminated paperwork, cutting labor costs, and increased turnover.

For a more comprehensive vision of updated factoring software benefits, we would add that a tech-advanced factoring platform is an end-to-end tool for customer service and omnichannel access to invoice financing and factoring operations. Its extended backend functionality allows automated match of payments and receivables, automated reports and dashboards, and full adaptability to different products.

Larger banks and financial service providers can benefit from a digital factoring platform in even more ways. For example, automation implies tiers of access to the system by defining clear user roles and models in order to ensure security and business efficiency. Custom interface and custom business workflows provide a sufficient advantage by showing factoring and supply contracts, payment requests, documents, buyers, etc. at hand in a single interface.

Factoring software development: step-by-step

Step 1. Find the proper software vendor.

The choice between a multi-focused software outsourcing company and the one specializing in financial software development should be clear. It is important to understand the background of your software provider, evaluate the portfolio and the offer. HES FinTech is a reliable company delivering financial digital solutions since 2012. HES system is implemented in banks and financial institutions in 31 countries worldwide. The company offers custom development of white-label invoice factoring platforms with a rapid time-to-market.

Step 2. Discuss the implementation details: integration with legacy software VS a separate system

Each option has its pros and cons. You may need to consult a team of experienced software engineers professionals to create a system architecture and consider the optimal and cost-effective option. It may include the full update of the digital infrastructure or seamlessly integrating a newly developed factoring module to the existing system if it is powerful enough.

Step 3. Considering mobile factoring

Mobile banking for business is becoming more popular. Some banks or financial institutions require adding a mobile version of their factoring system, some of them are now focused on adaptive web solutions, which fit both mobile and desktop user needs.

Step 4: Automating factoring stages

There are three main factoring business processes to be automated.

Origination includes the stages of registration, application, due diligence, KYC, scoring, decision-making, and underwriting. At this point, software vendors can implement paperless KYC due to integrations with third-party data providers, AI/ML-based credit scoring, and electronic document management.

Servicing implies automated workflow from the payment to the loan closure. Factoring software deals with servicing the preset deals, carrying out payment calculations, and payment data change. It also allows sending notifications upon certain events and ensures the factoring lifecycle works as intended.

Reporting in factoring is implemented in tech-advanced interactive dashboards that demonstrate statistics and extract precise facts with the help of easy-to-use tools. For example, HES factoring software contains an in-built reporting engine for creating custom reports. Some digital factoring platforms offer integration opportunities with third-party BI tools, such as Power BI, Tableau, or others.

Summing it all up

Updated factoring software helps to detangle, facilitate and speed up complex business processes, improve customer experience, ensure end-to-end document management and full compliance with the industry requirements. Tech-advanced platforms also help to implement fraud detection systems thus better mitigating risks and introducing a dashboard with financial statistics for real-time monitoring. The level of automation and customization can be discussed with the financial software developer.

Ivan Kovalenko

Entrepreneur in FinTech software engineering with solid 10+ years experience in IT projects and product assessment, development, and delivery. Co-founder and Chief Executive Officer of HES FinTech and GiniMachine AI.