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AI, factoring, and good tidings all around

Whether you offer factoring services or have yet to learn what factoring is, read on to discover how AI-powered onboarding in factoring can boost profits for financial institutions and all sorts of sellers alike.

Are you a provider of factoring services, otherwise known as a factor? If so, then you are probably tired of having to explain what factoring is to nearly everyone you meet, with the exception of some clients and business partners. More importantly, your financial institution or department is quite likely a great candidate for a custom-tailored AI solution, such as Applica RTA, that will simplify the complex client onboarding process required for factoring, give a tremendous boost to your productivity, and let you maximize revenue while still offering a truly competitive rate to worthy clients.

If, however, you are not familiar with factoring services, but you run a big company that issues lots of invoices, it’s high time you discovered what factoring is and how it can unburden you from the receivables waiting game by injecting reliability into your revenue scheme. And then, when you decide this is a service your business needs, bear in mind the ways robotic process automation (RPA) and intelligent document processing can give a financial institution that all-important business advantage. In other words, if you don’t offer factoring, but factoring is for you, you will be wise to choose a factor who partners with Applica.

So what is factoring, in practical terms? It is the buying of unpaid invoices at a discount, usually of two to six percent, in order to profit from collecting on the full invoice rate. It allows a financial institution – with its sixth sense for optimizing risk and its well-oiled debt collection machine – to symbiotically support a company with day-to-day cash flow needs. In fact, factoring may well be the ideal case of win-win between a financial institution and its client. Importantly, factoring involves splitting the purchase amount into the advance rate, which is usually a 75-80% upfront payment, and the remaining so-called factor reserve, which is paid only once an invoice clears in full. Note, however, that factoring is not borrowing funds against bills receivable. Rather, for a seller, it is accepting a worry-free worst-case-scenario discount and getting that money upfront, while knowing you still have a major league shark going after most of the rest of what you’re owed.

How do factors benefit from replacing tried-and-true Know Your Customer (KYC) practices with cutting-edge AI? In a word – tremendously. Unlike the majority of text-based automation work, KYC in factoring replaces not the comparatively straightforward manual data entry typically associated with document scrutiny, but instead the significantly more expensive work done by lawyers or paralegals. (Or not done at all – as when industry-wide booms or pandemic-related restrictions increase demand over supply for affordable outsourced legal services.)

For a factor, establishing the viability of hundreds or thousands of invoices can require following just as many breadcrumb trails. From fact checking company data to verifying lien release agreements, the onboarding process requires the kind of error-proof vigilance and all-seeing exactness that humans just can’t deliver on par with robotic solutions. Plain run-of-the-mill KYC is tough enough in most instances, with financial institutions striving to leave no stone unturned as they background check a potential client. KYC in factoring, however, means you’re essentially doing wholesale KYC for all your client’s customers, too. You bet AI comes in handy.

Just as importantly, solutions based on Applica RTA and RPA are instant and scalable. This means that entire bundles of invoices can be scrutinized for risk and viability in minutes, with no untenable lag resulting from an oversize bundle. Even given huge stacks of bills receivable actual risk can be quantified – rather than the statistical projection of risk that a human workforce could realistically generate on the basis of a partial sample. And knowing what this risk is in precise terms leads to better pricing strategies that benefit both factor and client. That two to six percent mentioned earlier? Imagine having the tools to optimize that number so that both the factor’s margin and the seller’s cash flow are maximized.


Interested in learning more about the ways Applica can take your factoring KYC to new heights? Contact one of our experts today.