There are many different ways to boost profitability.
You could focus on sales to new customers or start offering different loans or rates to improve your market share. Regardless of the active approach you take, every lending decision involves a combination of routine and non-routine decision processes.
Since business-rule development and optimization lets you make the most of your resources across your portfolio, what rules could improve efficiency the most?
Rule example 1: Fraud detection
Create a rule that identifies loan applications as a high-fraud risk. For example, you could flag applications that meet two criteria: industry type (e.g., cash-intensive business) and business age (e.g., companies less than a year old).
You can develop additional fraud detection criteria over time to highlight high-risk applications automatically, emphasizing to your staff which need further investigation.
Rule example 2: Verification processes
Verification activities tend to be repetitive and frustrating for both the lender and the borrower. Fortunately, business rules can help in this situation as well. For instance, consider setting a business rule to require additional identity verification if a borrower application has a thin credit file or a credit score below a certain threshold.
Bullseye your rule sets
When you first start to use business rules to improve efficiency, you may not see immediate gains and may need to tweak these rules gradually to suit your business. There are a few things to keep in mind when creating solid, helpful rules for your systems.
You should first avoid applying business rules to situations where human judgment and flexibility are required. For example, applying rules to financial data analysis is reasonable. However, you would want to apply your professional judgment to assess a request for contract amendment in a crisis or if a rejected applicant submitted another application with alternative and additional financial data to consider.
Second, schedule time each quarter to assess existing business rules and develop new ones. Input from your team will be crucial to review business rules, discuss the effectiveness, and consider what changes might work, if any.
While quarterly business rule development makes sense, you also need a few weeks to a few months of real-world data to evaluate how effective any rules in place are in terms of results.
Once your team becomes highly proficient at managing rule sets, you may want to consider adjusting to a monthly cadence of developing new business rules to fine-tune your system.
Worried that business rules will take too much work to maintain?
Find out more about how IDS Floorplan Finance Platform could systematically apply business rules to your lending administration and operations. And if you’re unsure which rules to use first, we can guide you through the process based on our experience working with other lenders.