As has happened across the
world of asset finance, the seizing-up of the credit economy has
had an effect on the deployment of financial products in stock
funding.
Unit stocking, for example,
has historically competed with other types of credit offered to
asset resellers by funders, such as traditional bank-based
overdraft lines.
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Now, though, as the financial
weather has eroded the security of these traditional credit lines,
unit stocking terms, where funders treat deals in terms of numbers
of individual assets rather than in bulk, are becoming more and
more attractive to dealers.
“Unit stocking has taken off at
speed in the past few years since it is a much more straightforward
product to sell than a large loan with a large security,” says
Stephen Dawson, who advises on stock funding at law firm
Shoosmiths. However, he adds: “But people are still looking to take
security beyond title to the asset.”
The reason for this is all too
familiar in the motor finance sector, says Dawson: “Unit stocking
is open to fraud and a high dealer failure rate has shown us that
as a product it needs to be well drafted, and well planned from day
one.”
But the fraud vulnerabilities of
unit stocking are visible in other sectors too, where they can be
even more troublesome to mitigate.
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By GlobalDataAs Gabriele D’Uva of Xerox
Financial Services explains: “The risk associated with unit
stocking is mitigated by keeping track of the units, and in the
copier market with its high volume, low value asset profile, the
manual work involved in that is very laborious.”
The resource drain engendered by
this massive headcount problem is one reason why Xerox Financial
Services is holding back from offering a stock funding service,
despite recognising the demand from dealerships.
Whereas many software providers
promise “real-time” stock tracking, D’Uva argues that efficient
software alone will not solve the problem of knowing where assets
are.
“You still need people to check
that the machines are physically there at the time you expect them
to be,” she says.
Brad Sayer, European general
manager of software provider Netresult Mobility, agrees that
physical auditing and precise timing are vital in avoiding
fraud.
“Fraud will only occur where the
culprit believes they have a window to misappropriate funds without
the knowledge of the financier,” he remarks.
“Unless the auditor can confirm
unit ownership, check financial encumbrances, up-to-date market
values and debt exposures, then interpret the results at the push
of a button,” he explains, “fraud will be a possibility.”
The answer, in Sayer’s view, is in
linking a provider’s system with mobile technology, such as PDAs,
in the hands of auditors.
“There is little doubt that the
future rests with mobile technology,” he says. “Real-time
information, instantaneous management reporting and removal of
inefficient manual processes are only some of the benefits.”
Alan Rhodes, sales and marketing
manager at Scania Finance Great Britain, has found success with
such a system. “We take a feed from the Apak system, and our audit
company downloads the feed on to PDAs so they can interface on site
at dealerships,” he explains.
“This is much better than a manual
system, which causes all kind of risk problems. This takes the
timing down to a day, and gives a quicker turnaround if we have a
problem.”
