To the same extent that financial service providers are regulated, they pay attention to their own liquidity flows and pass on necessary requirements to their customers.
"Always be liquid" should be the motto of every company; on the one hand, against the backdrop of dynamic market developments and a further deterioration in payment practices; on the other hand, the legal requirements for the liquidity of banks and financial service providers resulting from Basel III with LCR (Liquidity Coverage Ratio) and NSFR (Net Stable Funding Ratio) are increasing.
To the same extent that financial service providers are regulated, they pay attention to their own liquidity flows and pass on the necessary requirements to their customers. They should therefore expand their own risk management to include liquidity management in order to achieve good results in credit assessments.
The relevance of the topic for the "trade, maintenance and repair of motor vehicles" sector is evident from the insolvency statistics of the Federal Statistical Office for the first half of 2014, in which this sector occupies a (sad) leading position. [1]
According to a study from 2006 [2], insolvencies occur as a result of several management errors:
79 percent of insolvency administrators consider "lack of controlling" to be a frequent cause of insolvency,
76 percent cite "financing gaps",
64 percent see "inadequate debtor management" as an important reason.
External factors worsen the situation before and during insolvency:
82 percent recognize poor customer payment practices as a key reason for insolvency.
With regard to the financing of automobile dealerships (AHU) and corporate management, effective liquidity management is required in addition to receivables management. This enables changes in planned or expected cash flows to be identified in good time, solvency to be ensured in the long term and the company's own rating to be optimized. According to the findings of the latest study by Roland Berger and Creditreform, financing requirements can be reduced overall through optimized working capital management. [3]
System-controlled, forward-looking liquidity planning on the retailer side leads to a better account rating and reliable liquidity planning. Overall, both parties benefit from a win-win situation: the dialog between the financial services provider and retailer improves significantly, with management and control instead of having to react within usually narrow limits.
Five good reasons for an intelligent liquidity management system
Vehicle financing: An intelligent liquidity management system (LMS) provides a day-to-day overview of current financing by bringing together all data from different sources of information, such as a dealer management system or financial accounting. Although the bank is currently aware of a dealer's current financing, it does not usually see which vehicles have been sold. A professional LMS, on the other hand, integrates the data from the various information sources. This ensures transparency at all times and minimizes sources of error.
Installment financing / prolongations: An LMS supports the dealer in forward-looking liquidity planning derived from the operational data in order to be able to service installment financing on schedule. In particular, the retailer recognizes any shortfalls at an early stage and can react appropriately. This enables them to negotiate with the financing bank at an early stage and in line with requirements and, if necessary, agree extensions, which is otherwise not possible in this quality.
Liquidity overviews: Every financial service provider has a vital interest in high-quality and up-to-date financial planning over 30 to 90 days. However, this should also be transparent for the AHU, especially if it has a (supra)regional branch structure. Forecast calculations within the framework of an LMS are carried out at the push of a button with recourse to current operational data, determination of usual periodicities and time shifts.
Risk management: An LMS enables the continuous automatic and learning monitoring of receivables structures, maturity structures, receivables terms, customer structure analyses and assessments of payment behavior. In particular, however, the early detection of latent shifts in circumstances to the detriment of the merchant is important information for the AHU as well as for the financing bank.
Review cycles in credit exposure: Thanks to an LMS, banks can extend their review cycles as they can be certain that the processes at the merchant are monitored automatically and controlled in an optimized manner. This makes it easier for the bank to check and evaluate loans. The retailer, in turn, can rely on compliance with the agreed credit lines, which means that the financing bank is less obliged to provide collateral and make liquidity provisions.
How an intelligent LMS works
Significant optimization potential can be achieved through the intelligent preparation of data and control of processes using so-called cognitive software agents. The following tasks are in the foreground:
Consolidation of data from different upstream systems or (partly manually created) information sources used by the dealer (dealer management system, financial accounting, electronic banking system, internet portals for financing and leasing returns, systems for advance management, etc.).
Interpretation of relevant mechanisms of action between the liquidity-determining factors by an LMS.
Determination of liquidity forecasts and daily comparison of actual and planned liquidity.
Optimization of financial management and, if necessary, the financing volume at the retailer or reduction of the liquidity risk at the financing bank.
Acceleration of operational processes in accounting and controlling.
Increase return on sales by up to 1%.
Reduction in the utilization of the credit line by 20%.
Saving on interest costs through early liquidity repayments.
Additional interest income through clever investment strategies.
The afb Credit Management Solution (afb-CMS) supports intelligent LMS such as the InterCash system from Softmark AG. In specific customer situations, effective liquidity management can be established through the best-practice use of InterCash in the interests of both the financing bank and the car dealer supported by afb-Consulting. The resulting win-win situation is to the advantage of all parties.
1 Source: Federal Statistical Office: Insolvency proceedings (companies): Germany, months, proceedings applied for, economic sectors (sections), Wiesbaden 2014, as of 09.09.2014
2 EULER HERMES Kreditversicherung / ZIS Zentrum für Insolvenz und Sanierung an der Universität Mannheim e. V.: Ursachen von Insolvenzen - Gründe von Unternehmensinsolvenzen aus der Sicht von Insolvenzverwaltern, in: Wirtschaft Konkret Nr. 414, 11/2006
