As Published in the NEFA NewsLine

Automating Ingenuity

How do you standardize an industry of non-standard thinkers?

By Steve Lundergan
Vision Commerce, Inc.

Over decades, the leasing industry has been built by a throng of companies striving to create the perfect model of distinctiveness. During the last twenty five years the industry has been challenged with changes in tax laws, accounting methods and regulatory compliance. Tougher compliance and reduction of tax and accounting incentives as selling tools fueled the fire that burns within the entrepreneurial spirit of the Equipment Lessor. This industry of survivors is continuously turning its focus on building “Best Practices” through marketing, product, delivery and servicing ingenuity. If all Lessors had cookie cutter business practices, it would only serve to commoditize equipment leasing.

The alert Lessor will determine what the market needs and find a way to deliver it. They find ways to set themselves apart from the crowd; to offer more; perform quicker, improve efficiencies and in general bring more value to the client relationship? Once garnered, how do they improve on and protect that precious customer reliance? Regardless of today’s answer to that question, that resolve will someday change again whether through product evolution, competition or more changes from external governance. The key to staying on top in the relationship is to recognize that many of these “Best Practices” used in developing your client relationship are moving targets. Markets change and with that, the needs of the market change. The successful, innovative company always thinks ahead of the customers needs and is quick to implement those needs when it is most impactful to the relationship. In order to do so, companies must employ flexible systems to support this critical relationship building culture.

Automation Priorities

Where is this flexible, scalable automation most valuable to a company? When is a standardized product most appropriate for a Lessor?

Customer Relationship Management (CRM)

Certainly a good Customer Relationship Management solution is important for archiving critical records and historical communications with companies. A CRM helps to manage one-to-one relationships with suspects, prospects and clients. To some degree, certain CRM’s can even enforce some business rules on a limited basis.

Accounting/Administration (Back-end)

Most Lessors would not think of operating their company without a good accounting solution. These systems automate the booking, accounting, reporting and multi-faceted administration of lease and loan portfolios. And, they do so in a standardized way that is governed by rules set forth by the Internal Revenue Service and Financial Accounting Standards Board. Changes in tax and accounting rules that require modifications to accounting system are uniform for the entire industry and typically are unveiled well before they are enacted. The solution provider has time to make such adjustments to their code base prior to the need to implement.

Once a transaction gets to accounting, it’s done; booked; finished; regardless of the profit or loss in the transaction. While an accounting system can tell you how well or poorly the company faired on a transaction, it cannot stop you from making a mistake. Anyone who has been in this business for a while has witnessed the occasional transaction that was miscalculated or improperly qualified an operating lease or mistakenly priced as a bank rated, tax exempt lease. These are painful lessons that can be avoided by a good system protecting the Lessor at the origination point of sale.

Business Origination (Front-End)

Prior to the mid 90’s, automating the front-end had mostly been relegated to an internal staff person who had a good understanding of Microsoft Excel and Access. One valid reason could be that the Best Practices moving target moved too fast and frequently for outside solutions providers to comprehend and keep up. It is very conceivable that the automation of managing and processing business development had become the stepchild of system providers because of the complexity of supporting the different number of evolutionary business models found in the equipment leasing industry.

On the front-end, automation should not restrict the Lessor from making the changes necessary to invoke and implement market driven ingenuity. Systems must accommodate the Lessor’s “Best Practices” changes quickly, efficiently and cost effectively. A company’s ability to innovate in its origination is stymied if their front-end automation doesn’t allow them to be innovative. If a company employs Best Practices in business development and customer service, why would they not select a solutions provider that built their system around the same Best Practices theory to accommodate the Lessor’s business now and in the future when changes are desired or required?

Understand that there is a delicate balancing act involved in automating the business generation side of an innovative company. While automation should be able to move at the pace of change in your business processes, the foundation of your systems must be designed to make certain compliance of regulations and enforcement of business rules are not subordinate or subject to the creativity or resourcefulness of the Lessor. Once again we see where Best Practices are applied to allow restrictive flexibility in automation. In order to balance this, the solution provider must be equipped with several tools. Among those are certainly the proper technology, architecture and framework. However, the one tool that cannot be bought from Microsoft, Sun, Oracle or anyone is the human resource. The solution provider must have a sound understanding of the Lessor’s business as well as the industry.

Summary

I have directed attention to this dichotomy in the past. There is a distinct difference in automating the front-end and back-end of your business. In the back-end of the business standardized tax and accounting treatment, administration of taxes, etc. is compulsory. Regulations created and enforced by the IRS and FASB and multiple taxing jurisdictions, are designed to take away the Lessor’s latitude to be creative. Therefore, the Best Practices for a back-end solution provider would be to build a system that performs in a standardized fashion. Because most back-end providers have been in a pattern of creating a standardized solution within their technological schema, there may be a natural tendency to do the same with front-end solutions.