A/R Financing & Asset-based Lending

Use Case for Assessing Risk on A/R Financing & Asset-based Lending

Why assess the risk? Accounts receivable financing (along with asset-based lending) is the most fundamental form of “collateral-based” commercial lending. It combines elements of secured lending and short-term business loans. In the purest form, commercial borrowers use the value of their receivables and inventory (working assets) as collateral to secure financing to produce and market their products and services. The financing is then repaid by converting the inventory to cash, either directly or through the collection of an accounts receivable invoice. Depending on the risk profile of the borrower, lenders exercise varying degrees of control over collateral to manage the credit risk in the transaction.

Who should assess the risks? Credit Administrator, Chief Credit Officer, Chief Lending Officer, Directors’ Loan Committee

How to assess the risk: Rate the KRIs to determine if a threat would successfully exploit a vulnerability and to justify expenditures to implement countermeasures to protect the bank’s assets or reputation. Use the “Focus Risk Assessment” tool for in-depth analysis of risks and mitigation techniques.