2. Marco teórico
2.4. Sistemas de Información Empresarial
2.4.1. Enterprise Resource Planning (ERP)
Why lend?
As we all know, banks accept money on deposit from customers and pay them interest on the sums deposited. In order to find the money to pay the depositor’s interest as well as to meet the demands of shareholders and staff, the bank must generate revenue and make a profit.
Lending out deposited funds remains core to the banking industry. The rate of interest charged to borrowers is always greater than that paid to depositors. The difference is the bank’s margin. However, if the borrower is unable to repay the advance, the bank will not only lose
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the interest it requires in order to pay the depositor’s interest, but may also lose the capital sum which it needs to repay the depositor. Therefore lending skills and judgement are critically important to the banker if the depositors’ money is to be lent out safely and profitably, and repaid on time as agreed. Banks need to minimise their bad debts.
The lending of money is not an exact science; it is not possible to work out some formula or apply a certain theory to guarantee that the amount lent to the customer will be repaid with interest. For lending to businesses, except the smallest ones, there is no computer program that will accept business data at one end and produce the correct lending decision at the other. The spectrum of lending situations is too varied to accommodate a straightforward numerical solution. After gathering the information, you require to analyze your findings and make a sound lending decision. The general principles of good lending, or canons of lending, if consistently applied with a structured analytical approach and sound judgement, will reduce the risk involved in lending to the customer.
To help remember the fundamental principles, mnemonics can be used to ensure a uniform and consistent approach. Here are a few common examples:
CAMPARI = Character Ability Margin Purpose Amount Repayment Insurance (Security)
PARSERS = Person (Character,Capacity, Commitment) Amount Repayment Security Expediency Remuneration Services
PARTS = Purpose Amount Repayment Term Security
5 Cs = Character Capacity Capital Conditions Collateral (Security) CAMELS = Capital Asset Quality Management Earnings Liquidity System
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Your organisation may employ one of the above but from the list you will see that they are all effectively variations on a theme. From the above examples you can extract the key components:
• People/Character. • Purpose/Amount.
• Repayment capability/Terms. • Security.
• Remuneration/Margin.
We shall examine each of these elements in turn and in some detail, but before we start, here are three brief case studies; a more complex one is included at the end of the chapter.
The following customers would like the bank to lend them money for business purposes.
Case study
Mr Ahsan
Aged 44, he has been running his own engineering business for the last 10 years. He has banked with you since his business started and is seeking an extension to his overdraft facility.
Mrs Khan
Aged 38, she is a housewife who is starting a new business in catering. She has been a customer of the bank for the last 15 years.
Mr Asad
Aged 18, he has recently left college and wants a loan to start a business washing cars. No previous bank account.
These customers, or potential customers, are all seeking loans, but will you agree to lend to them?
On the limited information available, it is unlikely that you could make a rational decision on whether to lend or not, but as we go through the factors to be considered you will see how easy it is to build up a much clearer picture of the customer. The information will come from a variety of sources, some of which will be readily available, others may require you to dig deeper.
People/Character
It is, of course, people who make things happen. While all of the above key components are critical in assessing the viability of a proposal, if the individuals involved are found wanting in major aspects, then there is little scope for manoeuvre and to carry the proposition forward.
A “deal making” approach can help you to negotiate a mutually acceptable compromise in the proposal when areas of deficiency are identified. However, if you have doubts about the people with whom you are dealing there is little you can do to gain enough confidence to
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progress the proposal further.
Banks compete vigorously for business they see as attractive. There is a limited amount of good business available. To be successful, bankers must have the skills and judgment to assess a lending proposal thoroughly, structure an acceptable proposition and then obtain approval for the loan. You need to be able to identify an attractive opportunity. You also need to show the professionalism and skill that the customer is entitled to expect from their banker.
Remember too that banking relationships are based on mutual trust and respect, both of which have to be earned. Openness, cooperation and honesty are important. It is in this climate that the customer should be willing to provide all the information that the bank reasonably requests in order to assess the safety of the proposed lending and the customer’s ability to repay. Some potential customers will make a direct approach to you but more usually you will require a level of proactivity, which will not be achieved from sitting behind a desk. Your job as a business banker or credit analyst includes much more than just making credit decisions. You need to identify and contact customers whom you wish to add to your portfolio. The quicker you can assess the customer and their needs, structure a proposal that is appropriate to both your customer and the bank, the greater the level of success you will enjoy.
Preparation for meeting with a lending prospect
Imagine you have an appointment in your diary to go and see an existing customer. You will want to be fully prepared for the meeting. There will already be a great deal of information in the bank’s files and the typical questions you should be asking as you prepare are:
How long have they been a customer of the bank? If less than say six months, you may wish to find out their prior history. What is their reputation and track record?
Have accounts been maintained in a satisfactory manner with previous borrowing repaid on time? (The pattern of lodgements into the account will give you more information.) Are there regular lodgements to the account?
Are there any charges applied in respect of unauthorized overdrafts?
• Is there any evidence of items having to be returned unpaid for lack of funds?
• What are the figures for turnover (the business’s sales), the maximum balance on the account, and the minimum and average balance figures over the last three years?
Your computer records will provide this valuable information.
Let us now suppose that the meeting is with someone who does not at present do business with you. You may have asked for the meeting to try to gain their business, or they may have requested the meeting, having heard positive comments about your efficient, friendly and
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flexible service. Your reputation in the market is also important as you seek to grow your business.
If an account is being transferred from another bank, you will want to know why this is happening. It could be that the customer is unhappy about poor service, high charges or the location of their current bank, providing you with an opportunity to promote what your bank can offer. Equally, you must be aware that the proposition being put to you may have already been declined by their existing bank or that they are seeking an alternative quotation for comparison purposes regarding pricing, etc. You would not want to step lightly into another bank’s shoes and then find that there are serious financial and management problems with the business.
Meeting the customer
Information gathering meetings should be held at your customer’s business premises where possible; otherwise at least followed up with visits. Customers tend to be far more comfortable and forthcoming in their own environment. They take pride in showing you what they have achieved or are looking to do. The visit also demonstrates that you are keen to work closely with them and can relate to their situation and get a clear understanding of their current and future needs.
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looking while visiting their premises you will learn a lot about the individuals and their business. You will not be surprised to learn that in many cases the initial impression you form looking round the premises, its overall organization, the quality of employees, stock levels/controls, etc, very much aligns with your subsequent analysis of the performance figures. So what should you be looking for in assessing the people? Initially, it is important to obtain a profile of the individuals. While this can be compiled from discussion, obtaining CVs from the management team can be helpful. You should be looking for evidence of the following:
• age.
• qualifications and experience. • financial acumen.
• integrity and reliability, organizational ability and efficiency.
Qualifications and experience
You want to know whether the borrower has thought out their business proposition fully and whether they have the drive and ability to see it through to a successful conclusion. Many people in business have no formal qualifications, but unless such qualifications are essential to the successful operation of the business, relevant experience is often more important. Essential question: Has the borrower the experience and qualifications to make a success of the business?
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Another important demonstrable skill is good financial judgment and the ability to keep proper records and accounts.
Essential questions:
• Can the customer keep within any borrowing limit agreed? • Does the customer know quantity of sales to make a profit?
• If goods are sold at a certain price, do they know how much it has cost to produce them and does this price also cover all the overheads and result in a profit?
The business and management team
Having acquired the basic information on the people involved in running the business and formed an opinion on their abilities; you now need to think about the business itself. From your existing knowledge of different business structures, you will establish quickly whether the business is a sole trader, a partnership or a limited company. The success of a business is inextricably bound up with the drive and ability of the people running it.
Essential questions:
• Do they relate well to each other?
• Can they identify and agree common goals and objectives? • Can they work together as a team to achieve those goals?
Obviously, you only wish to deal with people who are respectable and trustworthy. After all, there are many ways in which a borrower can take unfair advantage of a bank once they have the money. We want our customers to be honest, dependable and people of high integrity. Whether your proposed borrower meets these criteria is a key judgment area.
Other issues as regards management are:
• What ages are the members of the management team? • Are any of the management team close to retirement?
• What abilities and qualifications do the management team have? • Have they distinguished themselves in previous business dealings? • Do they have previous experience in the business they are running? • What is their commitment to the business and how enthusiastic are
they about its success?
• Are they risk takers or conservative, change-orientated or conventional?
• Drive - are they “plodding along” or are they looking to the future? • Are they looking at developments by their competitors and making
changes to existing practices to ensure that their business stays competitive?
• Are they leaders or followers in the market place?
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such as production, marketing, finance, administration and human resources?
• Do they have a track record of coming through tough trading cycles and conditions?
For the majority of small to medium sized businesses it is not practical or realistic to have managers employed who are fully qualified in every critical area. Usually there are one or two key individuals, expert in their own specialism, but who know when to consult others, such as the accountant or banker, for example.
As business grows it is important to review the key areas to ensure that there is the appropriate knowledge and ability for the business to prosper. It is especially important for you to keep informed of the customer’s overall business strategy:
• Is the customer involved in a highly competitive business where competitors are always trying to undercut each other?
• If so, how will price reductions affect the figures on which you will base your decision on whether or not to lend?
• What are the risks this business faces, how is management minimizing these risks and are the projected figures robust enough to show the loan can be repaid?
• Is the business subject to seasonal fluctuations? (For example, a seaside hotel or a farmer.).
What is the character of a business?
The character of a business, whether it is a sole trader, partnership or limited company, not surprisingly, is shaped by the personal character of the individual(s) who run the business. The sole trader apart, the other business structures are heavily influenced by the ability of the individuals to interact with each other and identify and agree common goals and objectives. Once this is achieved, the real test is their capability to work as a team to proceed in the chosen direction, respond constructively when things go wrong, and ultimately meet desired targets.
This may seem like stating the obvious, but some businesses have been known to founder due to personality clashes or individuals being unable to agree on the way ahead. Provided you are satisfied that there is commonality amongst the individuals in question, you should be in a position to determine which of the above characteristics apply to the business. However, this is only a part of the total picture.
Here is a checklist to prompt you to think through the key issues:
o Capacity o Premises o Seasonality
o Management o Plant and equipment o Social issues o Succession planning o Technology o Profitability
o Staff o Competition o Legal issues
o Product o Industry o Political issues
o Service o Cost structure o Expediency o Market o Economic conditions
Capacity
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The areas to consider here are:
the capacity of the management. • the capacity of the business.
• the capacity of the industry and how the business compares with the industry norms.
• the overall effects of the economy on the business.
Management
This topic has already been covered above, but as a business grows it is important to review the key areas to ensure that there is the appropriate knowledge and ability for the business to prosper.
Succession planning
Succession planning ensures that a business can continue successfully after the loss (whether planned or unexpected) of any individual manager or member of staff, so it is vital to identify and plan for key positions in the future.
There is another dimension to this which is particularly prevalent in family- run businesses where they may have started as a sole trader or partnership between, say husband and wife. If their sons or daughters indicate a desire to join the business it can provoke issues in the following areas:
Can the business support the drawings of the additional individuals and possibly their families? A business that once supported one family may be stretched to support a number of families.
The personal problems that can arise in the above scenario. How do you choose which one of your family is to succeed you when it is obvious that the business cannot support everyone but they have all indicated a desire to become involved? An example of this could be a farming business where expansion could present a potential solution but the cost implications present questionable viability.
Staff
When considering the quality and ability of the human resources available, the following checklist will help:
• Recognition/reward schemes. • Staff morale/turnover. • Commitment.
• Under-/over-staffed. Labour relations.
Dependency on specialist skills - easily recruited/replaced • Training issues.
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Product
The product or service which the business sells/provides require investigation. If the business produces only one product, it has “all it eggs in one basket”, that is, it is relying totally on one product or on< service. This could make the business more vulnerable. Also, if anothei company invents a more advanced version of a similar product, youi customer could suffer badly from the competition and perhaps go oul of business altogether. Is this business involved in product development? It is always better foi a business to diversify and have a range of products or services. It is equally important that they keep abreast of technological developments, market trends, etc to ensure that their products remain competitive.
Service
How aware is the business of its standing in the market place and what does it do to sustain/improve its position?
• How does it handle/research the following areas? - Track service performance: assess gaps between
customer expectations and perception.
- Do they have an understanding of customer expectations both current and future, within their industry?
- Gauge effectiveness to any changes that are introduced to the manner in which they deliver their service.
- Identify high performing staff members/teams - reward and recognition.
- Complaints: do they try to recover the situation?
Market
• Does the business rely on one supplier or obtain raw materials from a range of suppliers?
Who are the customers and what is the potential for expansion?
Where is the business placed in the supply chain?