How debt data analysis could transform your cash flow

CommBank’s Quant, Data, Analytics and Technology (QDAT) and Trade Finance teams have brought receivables management and lending into the digital age.

“We've taken a full-on data approach. We can ingest hundreds of thousands of receivables from clients,” says David Watts, Executive General Manager Quant, Data, Analytics and Technology at CommBank.

“We can also ingest all the invoice data they have with customers, and we can codify them and monitor when receivables have gone out and which have been paid.”

This data then becomes a very powerful tool, allowing CommBank to help its clients in several ways.

A scale play

Firstly, the bank has much better information about a client’s receivables portfolio, such as the percentage of debtors who pay on time, the concentration of their receivables book, and how many invoices have been sent compared with the number paid.

This richer data allows the bank to lend more against a larger number of receivables, so where it might have lent clients, say, 50 cents in the dollar, it might be able to lend 60 cents, for example, depending on the reliability of the data and the risk profile.

“It’s more accurate because we’ve done it at a massive scale with data analytics,” Watts says. And the longer the bank works with a client’s data, the more accurate it becomes and the better we understand their risk profile.

Along with potentially lending more, CommBank can also provide clients with a report with actionable insights about their debtors. “When the bank receives data from you as a client for financing purposes, we're able to use that data to give you back better insights about how you can operate your business and be more efficient,” Watts says.

For instance, it can match the invoice due dates and the date the payment is received, and then identify which clients are habitually late.

“If these people owe you money and they're late, you could put a plan in action for them to pay. And that can be millions of dollars that could be a cash injection today,” Watts says.

Putting data in front of people can be a strong driver of behaviour. If a debtor knows that they’re in the worst decile of delinquent payers, they’re likely to make more effort to pay on time, particularly if they think they might be penalised.

Clients can see their loan facility based on their collateral as well as the percentage of the facility they’re currently using.

“If these people owe you money and they're late, you could put a plan in action for them to pay. And that can be millions of dollars that could be a cash injection today.”
- David Watts, Executive General Manager Quant, Data, Analytics & Technology, CommBank

Debtors by industry or season

Another useful metric for businesses to consider is debtor concentration – for instance, identifying the top ten debtors and the percentage of overall debt each one represents.

A higher debtor concentration may trigger a risk assessment-based review.

CommBank’s data analysis can also help to identify debtors which do or don’t meet their contractual payment terms. In a pilot CommBank ran with a logistics company, they found that enforcing contractual payment terms could generate millions extra in annual cash flow. “That’s money that they don’t have to borrow from CommBank,” Watts says.

“It’s really helping clients manage their cash flow in a more systematic, optimised manner, so they don't just manage their cash flow by pulling down on the facility.”

Debtors can be sorted by industry, which can sometimes reveal specific industries that lag payments more than others. The client then has the option of taking that into account and potentially setting prices higher for businesses in that sector because they know they’ll have to hold more cash flow while they wait for the invoices to be paid. They can also be sorted by currency.

The analysis can also reveal useful seasonal trends. Many businesses see a dip around January, when invoices go unpaid during the holiday season, with a pick up later in the month. “They understand their cash flow better and know when they’ll have to borrow extra from the bank because people aren’t paying their invoices as quickly,” Watt says.

“That’s money that they don’t have to borrow from CommBank. It’s really helping clients manage their cash flow in a more systematic, optimised manner, so they don't just manage their cash flow by pulling down on the facility.”
- David Watts, Executive General Manager Quant, Data, Analytics & Technology, CommBank

Security focus

There is a fraud detection angle to the project, too. The bank checks debtors’ names against tax file numbers and Australian Company Numbers or Australian Business Numbers and raises a red flag for those which don’t match.

CommBank is currently piloting the service with receivables clients to better understand which metrics and insights are most useful to them.

Clients can currently receive the data via reports generated by CommBank, but the bank plans to ultimately make the data available to clients in their enterprise banking portal.