The Case for Separating Collateral Management from Factoring and ABL Software

Written by: Jamie Clemons, CEO, Co-Founder, Artis

Introduction

Collateral is the foundation of secured lending, providing lenders with the security they need to extend credit. Yet, many lenders still manage collateral within their factoring or asset-based lending (ABL) software, creating inefficiencies and operational risks. As secured lending evolves, so too should the approach to collateral management.

This article explores the reasons why lenders are increasingly choosing to separate collateral management from their core loan systems. By doing so, they can enhance efficiency, reduce costs, and unlock new opportunities. As the lending landscape becomes more complex and competitive, lenders who embrace a specialized approach to collateral management will be better positioned for long-term success.

The Benefits of Managing Collateral Separately

By decoupling collateral management from loan software, lenders gain flexibility, efficiency, and risk mitigation benefits. Below are the key advantages of this approach.

1. Offshoring and Cost Savings

One of the primary advantages of managing collateral separately is the ability to offshore collateral processing without jeopardizing critical factoring or loan data. When collateral teams work within the factoring or ABL system, there is always a risk of errors affecting loan calculations, availability calculations, or funding decisions. However, by isolating collateral processing, lenders can significantly reduce labor costs through offshoring while maintaining the integrity of their core lending operations.

Consider a lender that moves its collateral processing offshore. By leveraging a dedicated collateral system, they can employ a lower-cost workforce without worrying about inadvertent changes to critical loan data. This not only reduces operating costs but also ensures compliance and accuracy.

Additionally, offshoring collateral processing allows lenders to scale operations efficiently. As the volume of collateral documents increases, a structured and independent collateral management system enables organizations to allocate resources effectively, reducing the need for expensive in-house processing teams. This is particularly beneficial for lenders looking to expand their portfolios without significantly increasing overhead costs.

2. Improved Document Recognition and Processing Efficiency

A dedicated collateral management system learns and adapts to various document types, reducing processing times and minimizing human error. Instead of relying on manual data entry, intelligent automation can extract relevant data, classify documents, and flag discrepancies.

For example, a factor handling thousands of invoices per month for hundreds of clients can utilize AI-driven document recognition to automatically identify missing information, duplicate submissions, or suspicious patterns. This speeds up the collateral review process, allowing lenders to make faster and more informed decisions.

Beyond invoice processing, an advanced collateral management system can integrate with OCR (Optical Character Recognition) and machine learning tools to enhance data accuracy. These systems not only recognize invoice formats but also adapt to evolving document structures, ensuring that even newly formatted invoices can be processed efficiently. This adaptability minimizes operational bottlenecks and reduces the risk of errors that could lead to funding delays or compliance issues.

Having a flexible OCR system is increasingly important as the advent of small language models (SLMs) is on the rise. OCR and document scanning technology are poised to see step-change improvements in the very near future. With SLMs improving the ability to recognize and process structured and unstructured data, lenders that invest in advanced OCR solutions now will be well-positioned to take advantage of these enhancements. Future-proofing document recognition capabilities ensures lenders can scale operations, reduce manual intervention, and improve accuracy as AI-driven automation continues to evolve.

3. Seamless Rebilling and Communication

Separating collateral management from factoring and loan software enables clearer, collateral-specific communication between lenders, clients, and debtors. Rather than discussions revolving around general loan and factoring transactions, communication can be tailored to specific collateral items, reducing confusion and inefficiencies.

Additionally, with collateral data housed separately, it becomes easier to generate revised invoices (rebilling), attach supporting documents, and track correspondence. This improves clarity, reduces disputes, and streamlines procedural workflows.

Another key benefit of specialized collateral management platforms is their ability to facilitate real-time communication and notifications. Automated alerts can be triggered when discrepancies arise, ensuring that all stakeholders receive timely updates. Whether a client needs to correct an invoice, provide additional documentation, or clarify details with a debtor, a dedicated system ensures that these interactions happen seamlessly, reducing delays and enhancing transparency.

4. Automated Post-Funding Verification

Lenders can enhance risk management by automating post-funding verification. With a dedicated collateral system, lenders can fund their clients immediately and then choose to verify a percentage of funded invoices—whether 10%, 20%, or another sample—after funding has occurred.

This post-funding verification process allows lenders to mitigate risk without delaying the funding process. If discrepancies are found, they can quickly adjust future funding decisions without disrupting daily operations.

Automated verification also improves lender confidence by providing an additional layer of fraud detection. By running post-funding verification checks through AI-powered analytics, lenders can identify anomalies in borrower behavior, spot trends indicative of potential fraud, and flag invoices that require additional scrutiny. This added safeguard strengthens overall risk management and ensures that lenders maintain a high level of due diligence.

5. Additional Services and Revenue Opportunities

A separate collateral management system enables ABL lenders to expand their service offerings. Since all collateral data is stored, analyzed, and organized efficiently, lenders can provide collection services for ABL clients who need assistance in recovering outstanding invoices.

With a dedicated system in place, lenders can also offer enhanced collateral tracking services, risk assessments, and more detailed reporting. This positions them as value-added partners rather than just financing providers.

Furthermore, lenders who implement specialized collateral management solutions can explore new business models. For example, lenders can monetize their platform by offering collateral analytics and insights as an added service. Clients who struggle with managing their own collateral may be willing to pay for access to sophisticated tracking tools, real-time risk assessments, and automated compliance features. By diversifying their revenue streams, lenders can further solidify their market position and differentiate themselves from competitors.

6. Customizable Debtor Verification Preferences

Every debtor presents a different risk profile and communication preference, and lenders need the flexibility to tailor verification processes accordingly. A dedicated collateral management system allows lenders to set unique verification preferences on a debtor-by-debtor basis.

For example, high-risk debtors may require more frequent verifications and direct phone calls, while low-risk debtors may need only periodic checks and email communication. Some debtors may have portals or websites where automated verifications can run in the background, reducing manual intervention. This level of customization ensures lenders manage risk effectively while maintaining strong customer and debtor relationships.

Another advantage of customized verification settings is the ability to integrate with third-party data sources, such as credit agencies, payment history databases, and industry-specific risk assessment tools. Lenders can leverage these external insights to refine their verification strategies further, ensuring that each debtor is evaluated with the most comprehensive data available.

Conclusion

Managing collateral separately from factoring and ABL software is a game-changer for lenders. From cost savings through offshoring to increased efficiency, automated verification, and enhanced service offerings, a dedicated collateral management system brings significant operational and strategic advantages.

About Jamie Clemons

Jamie Clemons is the CEO and Co-Founder of Artis, a technology company that empowers Secured Finance Lenders with innovative performance tools to increase efficiency, reduce costs, generate new revenue streams, and mitigate credit risk. Artis offers two flagship products: ArtisPro, a collateral management platform that streamlines operations and improves efficiency, and ArtisPay, a Supply Chain Finance solution that enables lenders to monetize accounts payable, manage risk, and control hidden liens. With over seven years of experience in Secured Finance, Jamie specializes in Supply Chain Finance, invoice management, and collateral management. Before founding Artis, he held leadership roles in subprime auto finance, where he managed a $5 billion loan portfolio and oversaw all associated operations. Prior to that, he worked at KPMG in the Cayman Islands before transitioning to corporate finance at ON Semiconductor, a Fortune 500 company. Jamie is a summa cum laude graduate of the University of Arizona, earning dual degrees in finance and accounting. He is also a licensed CPA in the state of Arizona.

The views expressed in the Commercial Factor website are those of the authors and do not necessarily represent the views of, and should not be attributed to, the International Factoring Association.