The value of management accounts for risk analysis

The ability to accurately assess SME risk is crucial. Yet, traditional methods often fall short, relying on outdated financial data that fails to capture the current financial health of businesses, ending up being ineffective, time consuming and fraught with risks. 

Recognising this challenge, Wiserfunding and Codat partnered to introduce a groundbreaking solution that harnesses the power of real-time management accounts. By integrating Codat’s platform to access up-to-date accounting data, we’ve transformed the way lenders evaluate SME creditworthiness, providing timely and actionable insights that were once thought impossible. 

Relying on outdated data 

Lenders have long relied on publicly filed accounts to assess the financial health of SMEs. However, this approach is like reading last year’s news to predict today’s weather. The information is stale, offering a limited and often inaccurate view of a business’s current standing. This outdated methodology exposes lenders to significant risks, potentially approving unsuitable businesses or rejecting promising opportunities. If more up to date management accounts are supplied, a manual and time-consuming exercise is completed by skilled and expensive analysts to get a more up to date picture.  

Real-time management accounts 

Enter the game-changer: real-time management accounts. Through our partnership with Codat, we’ve unlocked a world of data that paints a vivid picture of a business’s financial health in real-time. By overlaying the latest managed accounts directly from Codat’s accounting platform into the Wiserfunding solution, we provide lenders with a comprehensive view that go beyond the limitations of traditional methods. 

We assess the financial resilience of the SME, then overlay alternative data such as corporate governance, company structure, legal events, social media engagement, experience of the management team and recent news, before finally overlaying macro-economic indicators, assessing around 800 data points per company to offer the most accurate risk profile of a company in seconds. 

The results 

Our collaborative efforts have produced remarkable results, reshaping the landscape of SME lending. Here’s a glimpse into the transformative impact of real-time management accounts: 

• Increased accuracy: Analysis of a sample of SMEs revealed a staggering 25% improvement in the aggregated portfolio risk profile. This shift evidences a big change in risk assessment, driven by the precision of real-time data. 
• Material variances: More than 61% of SMEs experienced significant variances in their risk profiles when compared to assessments based on publicly filed accounts. This discrepancy underscores the critical importance of accessing timely data for accurate risk assessment. 
• Astonishingly, 19% of SMEs witnessed a substantial improvement of over 20% in their risk profile, with 13% experiencing a remarkable improvement of over 50%. This uptick in creditworthiness highlights the transformative power of real-time insights in unlocking hidden potential. 
• Conversely, 42% of SMEs saw a disimprovement of over 20% in their risk profile, with 23% experiencing a significant decline of over 50%. These findings underscore the vital role of real-time data in identifying and mitigating potential risks. 
• Early prediction: For 16% of SMEs, management accounts allowed us to accurately predict SME Z-Scores and Probability of Defaults before filed account information was available. This early insight provides lenders with a competitive edge, enabling proactive risk management strategies. 

Conclusion 

The partnership between Wiserfunding and Codat represents a change of direction in SME lending. By harnessing the power of real-time management accounts, we have gone beyond the limitations of traditional risk assessment methodologies, paving the way for a more accurate, efficient, and informed lending process. 

For lenders seeking to stay ahead in today’s dynamic landscape, integrating real-time accounting data into their lending and monitoring processes is not just a choice – it’s a necessity. The era of relying on yesterday’s data to make today’s decisions is over and the future belongs to those who embrace innovation and harness the power of real-time insights to drive success. 

 

 

Get in touch today to see how Wiserfunding can help simplify complicated risk management protocols and offer efficient navigation through the risk landscape, or learn more about our solutions here.