Meeting the challenge of growth in Asset Based Lending

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THE CHALLENGE
OF WINNING,
GROWING &
KEEPING
CUSTOMERS
IN ASSET-BASED LENDING
A Mercuri International White Paper Page 1 (4)
Meet the challenge of business
growth
Providers across a range of disciplines are looking for
significant, sustainable, profitable organic growth.
Delivering this profitable growth has never been easy
and today is even more demanding.
This paper looks at some of the challenges facing
businesses where the financial and service solution is
centred on assets. The field is wide and covers asset
finance, receivables finance, trade finance, real estate,
project finance, vehicle and fleet management and
structured finance. It looks mainly at B2B but also at
B2C and the public sector.
It references Mercuri’s ABL industry survey to highlight
key challenges, opportunities and perceptions and
indicates some of the ways organisations and
individuals can achieve the success they seek.
Opportunity for growth
After a challenging period over recent years, there are
two drivers for growth that can be identified. One could
be described as a positive, the other as negative.
Firstly as the economy recovers several sectors are
seeing significant growth. The appetite for working
capital is undoubtedly growing. In Mercuri’s last ABL
survey 93% of respondents (ABL providers) either
strongly agreed or agreed with the statement “the
demand for ABL solutions is growing.” ABFA states that
average use of ABL grew 9.4% in the year 2013/14.
Secondly the traditional sources of finance for many
businesses – the bank overdraft or term loan have
shrunk as banks have sought to change their risk profile
and enhance their return on weighted assets.
So while competition is intense (witness the TV
advertising campaign from Bibby) the opportunity for
growth there to be seized.
Shifting perception of ABL
.
The perception of ABL has shifted significantly since the
Financial Times suggested in August 2013 that a
lingering fear of asset-based lending was holding back
SMEs. ABL, particularly receivables financing, used to
be seen as ‘lending of last resort’ and there was a fear
Two drivers for growth

Winning growing and keeping clients Page 2 (4)
In Asset-based lending. CONT.
www.mercuri.co.uk
that customers could be concerned about security of
supply if their supplier was seen to be using factoring
for example. ABL is now seen as a mainstream and
professional way of funding growth by many FDs and
advisors. They see ABL as part of their overall financial
solution. The key for ABL providers is to help customers
to avoid potential stigmatisation in the way that funds
are provided, for example the shift from overt factoring
to confidential invoice discounting being a prime
example. The perception is clearly shifting to that of a
holistic source of working capital by optimising assets at
competitive rates.
Packaging ABL
62% of industry respondents to Mercuri’s 2014 ABL
survey believed that their clients see ABL as part of an
overall financial solution, rather than a stand-alone
product. To package facilities in this way requires an
active, pro-actively managed contact network.
For ABL providers who are part of large institutions, the
ABL professional must be seen as part of the client
relationship team with an appetite for sharing in ongoing
client funding. This requires internal alignment between
sales and risk management, specialists and generalists.
There is also a debate to be had as to whether ABL is a
“wedge” product to acquire “new-to-bank” business and
open up the wider banking relationship; an “ancillary”
product offered only to existing bank customers or a
stand-alone offering.
For independent providers, an external contact network
of finance professionals is critical in order to be involved
in transactions where ABL is an integral part such as
mergers, acquisitions, MBO’s and MBI’s.
Differentiation in ABL
As opportunity increases so does competition. More
competition requires stronger differentiation and this
can be difficult in an industry where the culture has
tended to be one of differentiating on rate and
stretching the % lent against asset value.
The opportunity to differentiate is there to be seized.
For some it has been through service levels, for others
it has been through increasing the focus on end-of-
lease and environmental issues. Brand differentiation is
playing a bigger part in ABL with changing relationships
with the “mother brand”, the emergence of the
challenger banks positioning themselves distinctively in
the market place and the emphasis on client
segmentation by some players.
Our research consistently tells us that organisations
place high value on suppliers who understand their
customer’s business and therefore how and where they
can add value. Interestingly, 62% of our respondents
held the view that clients value a consultative approach
rather than just a technical explanation.
This resonates with the 65% who believe that the way
ABL providers sell differentiates them from their
competitors and echoes the insight from Harvard
Business review that we operate in “A world where
companies compete not on what they sell but on how
they sell it” (HBR 12/04 “Best Face Forward” Rayport
and Jaworski)
FDs and their advisors now see
ABL as part of their overall
financial solution
“A world where companies
compete not on what they sell
but on how they sell it”

www.mercuri.co.uk
Value versus price in ABL
Our survey revealed that 82% of providers believe that
clients are increasingly looking for overall value rather
than just the lowest price. Yet still we hear daily stories
of margins cut to the bone under competitive pressure.
The key is to understand how the client defines value
and align your offer accordingly. For some, value is
derived in having providers that are easy to deal with
and do not take up valuable management time. Others
may place high importance on matching funding to
cashflow, for example using seasonal payment profiles.
Understanding of the key drivers, at both organisational
and personal levels, enables the focus to move away
from price and reduces the risk of commoditisation.
We are seeing an increasing demand for a new
approach to negotiation which moves away from an
antagonistic focus on rate and moves towards a more
collaborative approach to value. This does imply we go
“soft” when negotiating. It does require that we become
more effective negotiators.
Customer-centricity
There is a further significant opportunity for
differentiation here. Customer centric selling
approaches are right at the top of the agenda for many
of Mercuri International’s financial sector clients. This is
often being driven by the need to manage regulatory
and reputational risk but some are seeing customer-
centricity as a real opportunity. For them achieving “fair
customer outcomes” is not a burden but a chance to
stand out from the crowd.
The opportunity is very real because while 95% of
respondents agreed or strongly agreed that “Clients and
regulators expect an increasingly “client centric”
approach” only 60% felt that their selling approach is
best described as “needs first solution second”. This
suggests that almost half are still in an outdated
product-pushing, transactional mode.
ABL growth balanced with risk
Another trend we would highlight here is the tension
that many ABL providers experience in balancing their
business development and growth objectives against
prudent and sustainable risk management practices.
50% of our respondents were either neutral to or
disagreed with the statement that ‘selling is fully
integrated with risk and credit’. In a 2013 Deloitte
survey, financial services companies said that
embedding leading risk management processes in their
organisation was important for sustainable growth so
getting this balance right is critical for future success.
Top performers in this area involve risk managers early
and continuously so that deals can be shaped from the
start of the customer engagement process. This also
requires that sales professionals can understand and
articulate the customer situation accurately and
succinctly.
What’s to be done?
These challenges and opportunities are real, significant
and difficult to address; but the prizes from addressing
them successfully are great.
Based on our experience of the most successful
financial services organisations, combined with strong
and transferrable approaches used in other sectors, we
highlight the following areas to concentrate on:
Wide and strong business cases
All this is only worth doing if it will build sustainable
profitability. When forming the business case for any
development programme consider not only the
opportunity to grow income, margin and share but also
The way we sell differentiates us
from our competitors

www.mercuri.co.uk
the need to manage the risk of losing existing business
to competitors. Focus on the “white space” of
opportunity but measure the risk of not improving.
How much profit is being “left on the table”? What
impact will this have on the business and individuals
this year and beyond? What’s in it for all concerned?
Make the case clearly and convincingly.
Be clear about where you are
Make sure you understand and agree where your
people are before you start to make improvements.
Then make sure that what you are looking to improve
will really have a positive effect on your business. This
will save money, time and reputation.
As one business leader put it “We have based too many
of our development decisions on guesswork and
individual opinions. For the first time we are basing
decisions on data and agreement.”
Use what you’ve got
Many of the businesses we work with already have
good tools and approaches in place. They do not
always need to develop something brand new but to
make better and more consistent use of the resources
already available. Only use the new when you need to
but then use it boldly.
Innovative delivery
Deliver development using innovative approaches that
make the most of peoples’ time. The use of
approaches such as blended learning, bite-size
modules, simulations, experiential learning and live
case based events can make a huge difference in
optimising time and RoI.
Build implementation from the start
Implementation is the difficult bit in any development
programme. But it is vital. Plan the implementation
early on. It is much more cost-effective and produces a
much better result to build it in rather than “retro-fit” it.
Focus on durability
Plan ways to ensure any changes become part of
business as usual. Measure the change and wherever
possible document impact and Return on Investment.
Conclusions
We trust that this paper will have stimulated your
thinking – confirming some points and challenging you
to rethink in others.
If this paper has resonated with you then Mercuri
International is well-positioned to debate with you and
then diagnose, design, deliver and deploy with you to
ensure durability.
An example:
Subsidiary of European ABL
specialist.
Client growth programme focussed
on skills and processes for
identifying and engaging with high
potential clients.
The top 15% of clients were
identified and income from this
segment doubled over a two year
period.
To keep up to date with trends and
practical ideas on client-centric
business growth please visit
http://client-centric-financial-selling.com

Meeting the challenge of growth in Asset Based Lending

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Meeting the challenge of growth in Asset Based Lending