Dealing with Increased Failure Rates

The global economic situation triggered by the recent failures in the financial markets with regard to Capital and Liquidity has created a secondary shock affecting the finance leasing and hire purchase industry. The finance companies, many who are owned by or funded by major financial institutions, provide instalment credit facilities for tangible assets including cars, vans, trucks, plant and agricultural machinery, often operating multi-nationally. The direct impact of this crisis is to make the management and control of the rapidly deteriorating default situation much more difficult.

The issues finance companies are facing include:

• The increasing failure of hirers or borrowers to complete finance contracts due to the deterioration of their revenue and cash flows
• The increased potential for fraud in relation to cash generation both within the current portfolio and similar in relation to newly proposed transactions, where third parties such as vendors or brokers could act as the catalyst
• The deterioration of the asset disposal market to the extent that the potential for re-sale of repossessed assets may be significantly impaired
• A desire to limit their risk when acquiring new business which, in extreme, could lead to further rapid deterioration in revenues at just the time when they are required to help absorb losses from pre-existing business
• The need for effective management information.

Establishing Best Practice Management

Quadrant, with its specific executive experience, brings an analytical ability to the review of these key challenges in its engagements with major financial institutions and their instalment credit subsidiaries. Such projects could include: 

• Reviewing current collection and disposal processes to ensure they align with current industry best practice
• Reviewing existing credit documentation (in conjunction with local credit experts)
• Recommendations for the improvement and alignment of current portfolio and risk control processes with industry best practice, encompassing relevant regulatory regimes and national instalment debt legislation
• Taking account of applicable regulation, including Basel II, and local cultural factors
• Review existing Management Information structures, identify material gaps and recommend MI and Business Intelligence solutions which can both support local operations and easily consolidate for group wide reporting, where applicable.

Within this review process, Quadrant can offer substantive insight into:

• Understanding the historic evolution of their management processes
• Development of their clients’ performance, to enhance the control of the defaulting elements of their loan assets
• A concise and accurate appraisal of portfolio performance in relation to new business acquisition at the same time as strategies for the optimum re-balancing with respect to re-scheduling of current debt.