Blog By Andy Mesches
The Equipment Leasing and Finance Association (ELFA) Credit and Collections Conference this summer had one of its strongest turn-outs in recent years, in part due to our industry’s increasing focus on technology and business transformation rather than costly and time-consuming federal regulations that dominated conversations at prior events. It was refreshing to take a break from discussions about Dodd Frank, which appears to be on the back burner under the current federal administration. The ELFA reported in its magazine coverage that the event drew a “record-setting” 170 senior credit and collections executives.
Having attended this conference for decades I have observed the evolution of technology used in credit and risk management. The potential use of big data and artificial intelligence were talked about as early as the 1980s, but the intelligence that can be gleamed today is creating a new normal in terms of what is expected from credit managers, their value to organizations, and the speed and depth of data sharing. Digital tools are automating and reducing credit decision timing to an hour or two — often without any human intervention. And, that is just one part of the industry’s transformation story.
It was not just discussed, it was demonstrated how new applications enable companies to extract more precise data than ever before from their portfolios. This gives companies insight to predict events and manage risk in transformative ways, It’s not something people are shying away from. They are embracing it because it is critically useful to everyone.
In one conference session on fraud detection and prevention, yet another interesting tool was introduced by Bob Beckett, a senior director for data and analytics with Dunn & Bradstreet’s high risk and fraud unit. Called the Extreme Risk Consortium & Repository, it includes a portal with ELFA spokes in which members can anonymously enter flagged activity to be evaluated by the D&B unit and then collectively enable the system to provide alerts to the industry as a whole. He said fraudsters are becoming more sophisticated and so must the solutions to prevent and combat it. Among the kinds of B2B fraud being monitored are fake websites, spoofing, identity theft, fraudulent wire instructions, doctored bank statements, computer intrusions, fictitious entities and false links.
The topic of fraud also will be addressed at the 2019 ELFA Convention Oct. 28 in Washington, D.C. I will be joining my colleague, Paul Bent, senior managing director of Legal Services and Business Quality Assessment for The Alta Group, along with panelists representing DLL, the FBI and Buckley, LLP.
ELFA’s Credit & Collections Conference would not be complete without considerable exchange of thoughts about economic conditions and the timing of the next recession and its potential level of severity. Two studies, created by members of the Credit & Collections Committee andconducted by the ELFA — one a survey of credit managers and the other a survey of collections managers — produce findings that are reported at this conference, and they provide valuable benchmarks each year. What we are seeing is pretty normal activity, but we know the question is not if, but when, the next recession will come. What we are observing is a slight uptick in delinquencies and charge-offs. On the other hand, the economy is strong and unemployment is low at the time of this writing. Global trade and tariff talks are being monitored for their risk to certain industry segments and to the overall global economy.
Also addressed was CECL, short for current expected credit losses, that will affect many public and private organizations. CECL represents a significant shift in generally accepted accounting principles (GAAP) for credit losses. Instead of calculating incurred losses, U.S. finance companies will have to estimate expected credit losses up front and adjust them over the life of the loan, lease or other financial instrument. CECL’s effective dates for calendar-year companies are Jan. 1, 2020 for public businesses that are SEC filers, and a proposed date of Jan. 1, 2022 for all other organizations
The question at this conference was how to manage risk and adjust due diligence in this new accounting scenario. CECL is a topic my fellow consultant Shawn D. Halladay, managing director of Professional Development for Alta, has been speaking about at various conferences this year. He will be addressing it at the upcoming ELFA Lease and Finance Accountants Conference Sept. 16-18 in Chicago.
Andrew G Mesches (Andy) is a director with The Alta Group