The Future Of The Receivables Finance Industry Is Green

Luiza Buserska, Corporate Communications Executive at CODIX, and Laurent Tabouelle, COO of CODIX Group

Green deal, green transition, circular economy, sustainable finance – how does all this affect economies in general, and in particular, the receivables finance industry? How will it need to be transformed to meet the new requirements and objectives, what are the challenges for business and what are the innovations that are helping the green transformation?

The topic of sustainable business, green economy and the transition of business to eco-friendly solutions and processes is becoming increasingly relevant. In order to reduce emissions in the EU in the long-term and to finance economic transformation, Europe is striving to be the first climate-neutral continent, namely, to become a modern and resource-efficient economy. The Green Deal, also known as the Green Pact, is a set of policies proposed by the European Commission that should make Europe climate neutral by 2050. The plan is to reduce greenhouse gas production by at least 50% compared to 1990 levels. All laws will be revised and new ones will be introduced, with the aim of developing a more modern, resource-efficient and competitive economy.

In order for this to happen, the way in which the economy functions must be changed. The Green Deal will boost all businesses, not only in the EU, but all over the world. In practice, this means a complete change for all types of industries, which need to modify the way they function. These processes, of course, cannot bypass the factoring and receivables finance industry. For this transition, the sector will need to show foresight, planning and energy.

The world is already striving to reduce its carbon footprint throughout the chain. And organizations have no choice, but to meet the challenges and requirements of the Green Deal, focusing on both the introduction of new technologies and improving efficiency. The question is how prepared they are and how quickly they will be able to adapt to the requirements of the green transformation.

In this context, there is an increasing talk of sustainable financing, which will soon become mandatory for business and society as a whole. In July 2021, the European Commission presented its renewed sustainable finance strategy, which aims to encourage investment in sustainable projects and activities in order to manage the climate and environmental risks in the financial system in accordance with the European Green Deal. Ultimately, the goal is a transition to a more sustainable future. This means that from now on, organizations will make funding decisions not only on the basis of financial criteria, but also on the basis of environmental and social issues relevant to sustainable development. So, there will be many regulations in the banking sector in relation to what kind of companies need to be financed. And for the companies there will be a multitude of new rules regarding the production, the waste and the kind of changes they have to make in order not to harm the environment; the access to finance will also be revised. Therefore, the promotion of “green loans” will become increasingly important and along with other banking regulations, we are on the path to growing green finance.

On the one hand, the realization of the green transition for the different sectors is not only a challenge but also an opportunity – for faster modernization, automation and high-speed digitalization through the introduction of new technologies that will optimize processes and make it possible to adapt to all new regulations that are yet to be introduced at all levels.

On the other hand, the COVID pandemic and all the challenges it has created, may be the "awakening" of the business and a stimulus for the transformation process. More and more companies are realizing that productivity is not limited between office walls and are offering options for fully remote work when the company's business allows it. The still relentless pandemic, which continues to pose challenges before people and businesses may be the catalyst of this transformation. From now on it is not clear how often and for what reason the world will experience other severe lockdowns, so we cannot afford not to try all the new possibilities that can help us overcome the current limitations. Recent studies show that the huge and seemingly constant change to remote work is a trend that will continue, especially in countries with a high degree of digital readiness, and will have a significant effect on the structure of economies.

The processes of digitalization and automation are becoming increasingly urgent in order to continue the further development of the receivables finance industry. This can be done through the appropriate technological solution which is able to cover the entire lifecycle of the receivables finance products, from demand, through monitoring and risk management, to debt collection. In addition, such a technological solution can be easily parameterized to easily follow all the changes in the economic environment.

At the same time, more and more companies and organizations are using the capabilities of cloud technologies in order to simplify their business processes and meet the needs of their customers. Cloud service providers offer shared hosting and shared computing capabilities for super-energy-efficient infrastructure components which, while efficient individually, are more efficient globally, as they can allocate resources quite dynamically where and when needed instead of having unused capacity at each data center to adjust to peaks. It is becoming increasingly clear that smart and lasting business solutions are needed, capable of quickly and adequately adapting to any new situation.

All this means that the factoring and receivables finance industry, like any other, must ask itself whether it is ready to be part of this multi-layered process of transformation so that it can not only survive, but also take advantage and support the recovery of the economy. Now is the time for factoring and receivables finance companies to make some strategic decisions in order to meet the new normal. This means directing and adopting sustainable business practices; thus, they will both transform their business, achieving sustainable development, and also gain added value in the market. The first logical step would be the adoption of optimal software solutions enabling the gradual transition to more efficient and environmentally friendly business processes and able to evolve and reflect any local, including “green”, regulation in any country and any practice best adapted to the local market.

In short, it is no exaggeration to say that the green road is the only possible future for companies. In this context, the world is naturally moving towards more and more digitalization, automation and easier access to information. Factoring and Receivables Finance companies, just like all other sectors, will have no choice but to adapt, and the aim is to do so with fewer mistakes. No one will be able to stay away from this process. The future of the business is green, digitalized and focused on customer needs. The Factoring and Receivables Finance sector makes no exception.

This article was published by BCR, the leading provider of news, market intelligence and training for the global Receivables Finance industry: TRF News, January 2022.

This text was featured also on the website of FCI, the Global Representative Body for Factoring and Financing of Open Account Domestic and International Trade Receivables – FCI News Page.

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