(openPR) Growing numbers of companies are opting for receivables finance to improve their liquidity positions; the most commonly used method is factoring but this can prove expensive. A more cost effective method involves securitisation: collation of the claims as interest-bearing securities. However, Asset Backed Securitisation (ABS) can be highly complex and until recently this is why it has only been used by big businesses. But a distributor of communication technology is now one of the first to implement a trade receivables based ABS model that allows even small and medium sized enterprises to convert their existing claims into liquid assets. One vital element is needed to make this possible: The IT service offered by the ABS specialists fidis and its software ABS.pilot® …
Expenses incurred in executing the ABS transactions can be high, as all outstanding bills and receipts must be assessed for their acquisition potential and the transaction portfolio must be recreated. To complicate further, only claims that have credit insurance protection may be securitised. The processes involved are substantial and complex, which is why a medium-sized business such as the distributor of communication technology chose to use the expert services of fidis GmbH for execution and delivery.
fidis, the IT service provider, is based in Kaarst, Germany, and is a specialist in all types of trade receivables financial services. It has designed specialist software for facilitating the administration and reporting of sophisticated ABS transactions. As the Distributor’s Financial Treasury Services emphatically stated: “Without the help of fidis GmbH, we would be unable to use ABS as a viable financial instrument, since the task of fulfilling the risk management requirements is very demanding – our expenses would otherwise be much too high!”
ABS.pilot® processes thousands of bills and receipts on a daily basis, so that the complete book is constantly updated. Every night new outstanding items are fed into the system and are picked up by the software to be assessed according to diverse acquisition criteria. The software then calculates the optimised funding level and makes the relevant postings in the SAP accounting system. Finally, the results are made available in an extensive report.
ABS.pilot® thereby automatically assesses each claim in terms of its acquisition potential, in compliance with rules stipulated by both the deal structurer and Euler Hermes, the insuring partner. This is necessary because an entire range of selection criteria must be taken into account in the process of securitising the trade receivables – and most significantly here in the protection against default risk. If the insurance cover is to be valid at the time of the claim, the conditions stipulated by the credit insurer must be continually fulfilled. ABS.pilot® undertakes automatic processing and data is directly exchanged with the DP system of the credit insurer ensuring the accuracy of information transfer. Several thousands of bills and receipts with values ranging from single to seven-digit Euros are recorded and assessed in this way every day.
In this case, particular attention must be given to the different types of credit items that appear in the communication sector. They constitute the daily business operations in the mobile phone arena - as returns or merchandise credit. Once a credit item enters the records of the merchant, the inventory of the outstanding claims of the distributor reduces analogously. In this manner, the impact of each type of credit item on the assessment of the inventory of claims is different. It is therefore important for the business to ensure that all credit items are carefully registered and the assessments display subdivisions, such as cancellation, returns or merchandise credit. ABS.pilot® can support this high level of operational complexity.
“Only with this kind of automation can ABS become a feasible option for small to medium-sized businesses,” Otto Johannsen, the managing director of fidis GmbH, stresses. “There are significant advantages: Not only is ABS less expensive than factoring, it also allows the businesses to operate independently of the banks.”
ABS.pilot® was developed specifically to set-up and support ABS transactions. Once the deal’s processes are automated, ABS is a viable and compelling option for a business with outstanding balances exceeding 30 million Euros.
