Ledger Extraction Makes Small Business Overdraft Finance More Efficient

Much of our focus on TFM is around Purchase to Pay solutions embedding finance. But we cannot forget the enormous market that exists for companies that sell and require finance, part of the Order to Cash side.

A few notable banks, namely Barclays and HSBC, have recently rolled out a capability that enhances the overdraft facility for small business lending by using their receivables as collateral. The capability was developed by the vendor hpdsoftware, where their Gemini solution goes into the seller’s books on a real time basis. The seller must agree to upload a bit of software on their ERP and the software then extracts data out of their ledger entries, including credit notes, and feeds the bank’s lending system.

This helps overcome the classic flaw with invoice discounting whereby you can receive the invoice data but fail to see the corresponding credit note that can dilute the invoice value. That kind of fraud would be impossible to do in a ledger extraction world unless running a total fraudulent ledger which is orders of magnitude harder to do.

What is interesting in what these banks have done is to take a classical product, overdrafts, and using data, make it both more efficient and effective for both loan limit and pricing.

This is the kind of example that data offers. Having access to a company’s Sales Ledger and General Ledger brings a whole order of magnitude of information than any bank had access to before and on a real-time basis.

It is only a matter of time before someone comes along and enhances this data with algorithms. Of course the issue of data privacy must be addressed.

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