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Digital Account Check in Real Time: Open Banking Creates More Security for Factoring Providers

12. November 2019 / in Trends

Factoring is a popular financial service that helps companies optimise their cash flow and minimise the risk of payment defaults. While this form of financing has traditionally been of particular relevance to large companies, factoring has also recently grown in popularity amongst small and medium-sized enterprises (SMEs), according to a survey conducted by the German Federal Factoring Association for Medium-Sized Businesses (german).

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One of the main reasons for this development is that new factoring services are becoming more digital, more efficient and more attractive - and Open Banking is playing a crucial role in all of this. In this blog post, we show you how factoring providers are using the Digital Account Check to develop innovative service offerings.

New #Factoring services are becoming more digital, more efficient and more attractive - and #OpenBanking is playing a crucial role in all of this.

In the meantime, factoring not only offers SMEs, but also freelancers and smaller traders an interesting opportunity to increase their liquidity through the factoring of receivables. In the past, there were often a number of hurdles standing in the way:

  • Administration: The processing workload associated with conventional, “analogue” factoring services is huge and can hardly be managed by smaller companies or even freelancers.
  • Communication & Process: The manual, non-digitalized exchange of invoices, account statements, business analysis and numerous other documents does not fit in with the working methods of agile freelancers and start-ups who rely on digital processes.
  • Processing time: The long waiting times before a conventional factoring provider makes a financial commitment renders the offer irrelevant because SMEs depend on quick decisions and planning security.

Terms: In contrast to large companies, small traders often find that the receivable amount is disproportionate to the factoring effort, which is why the terms of factoring offers are usually unattractive.

This supposed niche of freelancers and SMEs has now been discovered by factoring start-ups. However, established factoring providers are also modernizing their services and attracting customers with factoring services that work at the touch of a button thanks to Open Banking. This way, they present self-employed individuals and small businesses with new opportunities for liquidity optimization.

Whether you’re a beginner or a professional, our Open Banking white paper will show you how the banking ecosystem of the future is growing step by step. Click here to download it for free!

Factoring Industry on the Rise Thanks to Open Banking and Digital Transformation

This is made possible by a largely consistent digitalization and partial automation of the process from the factoring application right through to payment into the applicant’s bank account. From the applicant’s point of view, this simplifies the entire handling process. In turn, factoring providers reap the benefits of a lean and efficient process, most of which can be digitalized and even automated in certain areas.

This results in greater efficiency, more favorable terms and increasingly innovative factoring services. This potential has been especially exploited by up-and-coming providers such as decimo, Finiata, Billie and Vaitrade. They specialize in services for a target group comprising of companies and freelancers that have been “undersupplied” by the capital market so far. Here are some of the advantages they provide:

  • Easy retrieval of online offers with clear terms.
  • Convenient application process and digital submission of documents.
  • Secure identification of the applicant, almost in real time.
  • Rapid assessment of the applicant’s creditworthiness.
  • Fast validation of submitted receivables and invoices.
  • Financing decision within minutes or hours.
  • Immediate payout of factoring amount after receiving approval.

By the way, the factoring specialist decimo specializes in providing services for traders, freelancers and SMEs. Its service promise: receivables and invoice factoring within 24 hours. The Open Banking platform from FinTecSystems serves as an important technical component of this.

Further details can be found in the case study “decimo: Real-Time Account Holder Verification via Access to Account (XS2A)”.

Open Banking Makes it Possible: Factoring in Real Time

From the perspective of factoring providers, a whole new market with enormous growth potential is emerging when it comes to providing services for SMEs and freelancers. Four aspects are crucial for the efficient processing of factoring requests and the assessment of creditworthiness and capital market capability of the applicants:

  • A functioning digital interface to the applicant’s online business account
  • A high-performance categorization of transaction data, geared towards business customers.
  • A profit and loss statement (P&L) and business analyses using the Digital Account Check.

A validation of the invoices submitted in order to filter out fake invoices that have no valid receivables.

Infografik Open Banking & Factoring

Banking APIs create the technical conditions that enable these aspects to be implemented in practice. At the same time, factoring providers are responding to the new target group’s desire for digital processes, predictability and speed: a classic win-win situation for providers and customers alike.

For #factoring providers, an exciting growth market is emerging when it comes to serving SMEs and freelancers. However, these services must be digital and innovative.

As we described in our blog post about optimizing online conversion rates through API banking, the Digital Account Check via a banking API provides a modern and seamless factoring experience:

  • The applicant uploads an invoice via the factoring provider’s offline portal.
  • The factoring provider uses the Digital Account Check via a banking API to provide a real-time validation of whether the applicant is the account holder.
  • The Digital Account Check supplies the factoring provider with valuable information for assessing the applicant’s creditworthiness.
  • The factoring provider evaluates the submitted receivable and pays the financing amount to the applicant’s online account within a very short period of time.
  • If requested by the applicant, the factoring provider also takes care of invoice management and dunning processes.

Are you a factoring provider looking to improve your online conversion rates through a digital customer experience? We will be happy to advise you regarding the possibilities afforded by the Digital Account Check and our Open Banking platform. Get in touch!

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Schlagworte: Trends

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