In a financing process, the module that supports the creation of quotes plays a big role because most of the work is happening there. If we consider that we win one out of 10 quotes, it is clear that the calculation of these quotes must be fast and flexible.
In general, the financing process goes as follow:
Thus, we will explore in this 2nd post, the functions Automation of Calculations for Quotation, Approval of Credit and Pricing.
The Financial Calculation
First, to make all the financial calculations necessary to automate the QUOTATION of a commercial financing, you will have to choose between developing a home calculator or using an API that calls a “Cloud Calculator” like Supertrump.
This type of service is expensive but allows for more complex and precise calculations, so if the organization’s financing volume is large and there are multiple various financial scenarios, this may be the preferred solution.
If, for example, your organization decides to calculate the profitability of each financial scenario (ROE) in real time, it will be difficult to do so without this kind of service.
Developing a custom calculator is the other option, but care must be taken not to try to manage all possible scenarios as this could prove to be an expensive adventure in terms of costs and time considering the multitude of variables and factors which you will have to take into account during the programming and during the TESTS! So you have to focus on the types of transactions that generate the most volume in your organization.
A major challenge in automating a commercial financing process is to create quotes with different financial scenarios while maximizing the chances of “winning” the deal while also maximizing the profitability of the transaction.
To do so, this module must be able to calculate in real time the financial data of each scenario. If the organization can afford it, the real-time calculation of the profitability of each scenario will enable the representatives to find the best possible scenario for both the lender and his client.
With the data entered and calculated in this module, the risk associated with the transaction will be managed via the algorithms calculating latitudes and tolerances according to the different levels of approval.
With good algorithms that calculate tolerances, credit approval requests to the Pricing service will be reduced and the financing process will be accelerated. The management of latitudes meanwhile brings fluidity to the process by avoiding starting all over again as soon as one of the variables of a financial scenario changes. For example, when the actual amount of the invoice is entered and it differs a little from the original agreed amount.
It must be understood that the automation of financial calculations through the development of a proprietary technology, via an API or via house code, provides an undeniable competitive advantage, in terms of processing capacity, acceleration of the financing process, reducing errors and maximizing profits for each transaction.
The Pricing
To really speed up the financing process, the entire production chain must be automated. A good rating module can minimize rate requests made to the Pricing service, but these will continue to exist. The goal is to speed up this approval, eliminate paper, emails and even calls from the process.
So, on the representative side, a simple button will generate a rate approval request with all the data needed by the pricing department to make a decision and with notes from the requester to explain the context.
On the Pricing side, employees will use an application to approve or reject requests. The start screen shows the transactions to be processed listed in an order defined by the application (no favours). For each request, a timer indicates the time remaining to process the request according to the organization’s standards.
Obviously, we do not want a ping pong game in this process but it must still be flexible enough to allow exchanges between the two services. For example, the Pricing service must be able to quickly request additional information or must be able to approve a rate provided that…
Credit Approval
Approving a financial transaction is a complex and sometimes lengthy process. Validation of the financing structure, reading of the financial statements, understanding of the legal links, analysis of the amounts already financed in order to arrive at a “scoring” are generally carried out by an experienced team that uses a commercial application.
A good way to optimize the process here is to allow the automated exchange of all the information needed by the team making credit approval decisions. Obviously, all this information needs to be scanned into an ECM (Enterprise Content Management) and the mechanics to digitize this information should be automated as much as possible to optimize the process AND to avoid ending up with a tower of Babel after a few years of document backup where people have decided on their own where and how to save this information.