Insights: How IT solutions are enhancing factoring and supply chain finance

The factoring and supply chain finance (SCF) landscape has undergone significant transformation in recent years, driven by a confluence of technological advancements as well as evolving market demands specifically in the GCC, with many banks planning to launch factoring, receivable finance, or revamping their legacy processes and systems.

As banks now seek to optimise their offerings for corporate clients and small and medium-sized enterprises (SMEs), it is imperative to harness cutting-edge technology to streamline processes and enhance the overall customer experience.

In this article, I would like to highlight some of the recent trends in SCF and outline strategic measures banks can adopt, with a particular focus on utilising sophisticated platforms such as the Comarch Factoring Platform.

Recent trends in factoring and SCF

The open account and SCF sectors are experiencing rapid digitalisation marked by these key trends:

1. Digitalisation: The adoption of digital platforms is revolutionising SCF by automating and simplifying processes.

These platforms reduce manual intervention, enhance transparency and streamline operations, providing a seamless user experience for all stakeholders involved, including the end client, buyers, suppliers, and bank back-office users.

2. Data analytics and artificial intelligence (AI): Advanced data analytics and AI are becoming integral to such factoring and SCF products, enabling more precise credit risk assessments, predictive analytics for supply chain disruptions, and optimisation of financing terms. These technologies facilitate better decision-making and risk management.

3. Sustainability: Increasingly, businesses are prioritising sustainable practices within their supply chains. This shift is driving demand for financing solutions that support environmental and social responsibility, aligning financial incentives with sustainable development goals.

Banks can effectively leverage these trends and enhance the overall SCF experience for SMEs and corporates by considering the following strategies:

Implementing advanced SCF platforms: Banks should invest in robust SCF solutions that offer comprehensive features for automating end-to-end factoring processes from uploading of invoices to settlement, providing real-time updates and integrating seamlessly with existing banking systems. For example, platforms such as the Comarch Factoring Platform enable efficient transaction tracking and financial management, thereby improving operational efficiency and customer satisfaction.

Embracing AI and data analytics: By utilising AI and data analytics, banks can harness vast amounts of data to uncover insights and predict future trends. AI-driven tools can assess the financial health of supply chain participants, anticipate potential disruptions, and recommend optimal financing solutions based on the historical trends of timely repayments.

Modern factoring solutions can even do payment reconciliation using the AI-enabled engine with a more than 85 per cent success rate, auto reminders, and debt collection activities automation.

This capability allows for tailored financial products that meet the specific needs of SMEs and corporates, enhancing the efficiency of back-office operations and adding a value proposition for clients.

Fostering collaboration and communication: Effective communication is essential for a smooth supply chain operation. Banks should facilitate this by providing platforms that enable real-time interaction and information sharing among all stakeholders.

Comarch Factoring Platform (CFP) is one such platform that enables real-time messaging, alerts and document sharing, uploading invoices be it individually or in bulk within the platform to significantly enhance collaboration and ensure alignment across the supply chain.

The parties can navigate within the portal to check historical transaction details and explore insights from various reports available without needing to wait for a manual response.

Supporting sustainable practices: As sustainability becomes a central concern for businesses, banks have a critical role to play in supporting environmentally and socially responsible practices. By offering green financing options, such as preferential interest rates or extended repayment terms for companies that meet certain environmental standards, banks can promote sustainable development and attract clients committed to these values.

CFP even allows banks to explore hundreds of different permutations and combinations of parameters to configure how to charge fees and interest to their customers. This mechanism helps easily reward customers by following certain sustainable practices.

Complying with Sharia laws for Islamic factoring: The integration of Islamic factoring options is becoming increasingly popular in the GCC countries as all Islamic banks can only provide Sharia-compliant offerings, other conventional banks as well prefer to cater to both conventional and Islamic customers, particularly in the Middle East region with significant Islamic populations.

To provide such offerings, banks must ensure compliance with Sharia laws, which prohibit interest-based transactions and emphasise profit-sharing and ethical investing.

By adhering to these principles, banks can offer Sharia-compliant financial products that cater to the needs of Islamic businesses, thereby expanding their customer base and promoting financial inclusion.

As the business environment continues to evolve, staying at the forefront of these trends will be crucial for banks aiming to effectively support their clients and drive long-term growth.

By adopting these strategic measures, financial institutions can create a more efficient, secure, and sustainable future for supply chain finance.

Latif Sheik is the business development director at Comarch.