Having the right software in place can make the
difference between success and failure in
block discounting. Antonio
Fabrizio assesses the market
Block discounting is currently
suffering from a perceived “riskiness” that has caused a number of
major finance companies to move away from the market.
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However, if it the sector is to be revived, it
will need to have decent software supporting it.
At the roots of block discounting there is a
relationship between the block discounter and the finance company,
and systems must reflect the needs of both parties in that
relationship to be successful, experts say.
John Allen, formerly MD of Geoplex, which was
acquired by Field Solutions earlier this year, says that the
company’s Finlex is a finance administration system which can
easily manage leases against block discounting funds.
According to Allen, who is now business
development director at Field Solutions, there are two levels of
system requirements to consider when doing block discounting.
He says that the small finance company has an
internal requirement to report how much it intends to pay each
month, and how this will affect its cash flow for its leasing
deals, which usually vary between two and four years in length, and
block discounting deals, which are paid off over three years.
“You have to balance your agreement covering
that spread, otherwise you may end up with a period where you are
paying out money to the block discounter that has a negative cash
flow effect on you,” he says.
The other major requirement, Allen adds, is
the ability to “audit information back to the block discount
provider simply, reporting accurately […] and also clarifying
within the system that agreements are only blocked with one
person”.
NetSol Technology is another software company
with a number of clients involved in block discounting.
Tony Langford, NetSol’s head of sales in the
UK, points out that initial quality data capture is “the key
starting point”.
“It’s important to be able to identify the
types of deals being written, the client type, the finance product,
the asset information, and everything else that will impact the
decision as to whether a particular agreement is suitable for
inclusion in the block,” he says.
As a consequence not all agreements will be
suitable, because deals that are deemed “higher risk” will need to
be identified and “filtered out” of block inclusion.
For Langford, equally important is that the
system can work with “dynamic” blocks, so that an agreement that
falls into arrears will no longer qualify for inclusion in the
block.
The non-conforming agreement has to be
identified and replaced with an “acceptable” agreement, which
maintains the required security for the block discounter.
“The system should have a clear way of
segmenting and identifying those agreements that comprise the
block, allowing for multiple blocks,” Langford says.
One key factor is the capability to regularly
verify the ongoing performance of block deals.
For that, there needs to be an audit process
in place, which can be a burden, but can be made easier if a system
is capable of reporting agreement performance.
GFKL’s UK subsidiary Virtual Lease Services
(VLS) provides management and audit services for block
discounting.
The company – which works with block
discounters and audits for them the deals that are being managed by
small finance companies – uses two systems for managing portfolios:
NetSol’s LeaseSoft, and CHP Consulting’s ALFA system.
Its auditing job is to make sure that the
deals that make up the block are still good deals – in other words,
that they are not in arrears, that the customers are still paying,
that the deals haven’t been terminated early, and generally that
the whole collection and accounting mechanism is being managed
correctly.
For Neil Richards, a VLS director, at the end
of the day system requirements are as simple as those for a loan –
something that is very straightforward in terms of accounting.
He adds: “From our point of view, what we want
from our systems is that, if a client goes bust, we can take the
portfolio on quickly, extract the data from both systems and upload
them quickly.”
