The rise of portfolio level management during COVID-19 | FCI
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The rise of portfolio level management during COVID-19
portfolio management
10 September 2020

This article is an extract from In-Sight August written by Michael Ellis, Managing Director, EQ Riskfactor & KYC solutions

COVID-19’s initial impact rippled across the globe six month ago. The readiness of SME clients to return to ‘normal’ trading varies enormously, with a huge range of considerations determining their preparedness such as their local regions, sectors, customer demographics, appetite to risk and own leadership skills. With so much inconsistency, it may seem impossible to accurately assess and understand the makeup of their portfolios. However, the subsequent value can be immense in what will continue to remain a competitive funding marketplace.

Where to begin

A good first step is to apply dynamic risk scoring against your clients. From here you can progress to a thorough review of your portfolio, assessing combined debtor exposure. As part of your portfolio review, while it is vital that you know the level of exposure to direct sectors of clients, it is also critical that you know how this is impacted across your debtor base.

A thorough overhaul of current reporting systems with a view to building a new COVID-ready suite of reports will help to give a more in-depth understanding of your portfolio. This, combined with a new rhythm of communication and collaboration with your senior team members, will greatly enhance risk monitoring. It is a time for your teams to embrace change and you need to encourage this whilst ensuring revisions of policy are adhered to.

Actions to prioritise

A priority for your business is to reset risk parameters and covenants which are no longer appropriate in the current climate. For example, client and debtor limits may be reassessed. By creating soft limits that trigger a review due to material change, you can be both proactive and transparent with clients as part of your strategy to support SMEs.

Other actions to consider include:

  • Setting processes and policy against risk scoring.
  • Use software and systems to drive adoption through AI, automation and workflows.
  • Create focus lists to prioritise time on client level plans.

Lift the fog created by COVID-19

Understandably, you want a clearer view of your portfolio. This can be achieved using additional data sources to enrich your monitoring and lending decisions. Face to face audits are challenging, so embrace digital alternatives such as video calls and remote audit tools for traditional verification.

Switch from periodic to system driven audit triggers for early intervention. For a 360-degree view of your more concerning clients, combine accounting data with banking and tax, which corroborates to provide a single source of truth and provides the strongest defence against both deliberate outset and circumstantial fraud.

Obtain support and advice from experts

There are a range of industry specialists who can provide services to assist during these challenging times. It may be the ideal time to upgrade existing systems or seek advice on current process vulnerabilities. Some businesses have used the pandemic as a catalyst for digital transformation and the design of a stronger target operating model. Recently, our consultants have assisted in detailed portfolio reviews from both lenders, and on occasion their own institutional funders.

As ever in receivables finance, there is risk in every advance you make. Your strength may come in your ability to maximise those recoveries. Many of our strongest clients achieve this through collaboration with external auditors, collections experts and, where sadly needed, administration specialists. Whilst this may seem a negative step that you wish to avoid, there is a degree of responsibility to our SME clients in ensuring that they obtain professional advice.

 Our experience working with clients of varying size, maturity and across global locations has seen that these steps can be adopted by all, in pursuit of a more efficient, yet lower risk target operating model.

The measures we implement today will not just be of temporary benefit. Our ability to handle change, adapt to remote working and embrace technology has proven that we can respond to the gravest of challenges. It is not the strongest or the most intelligent who thrive, but those who can best react and adapt to change.