Small and medium-sized enterprises play a critical role in the Asia-Pacific (APAC) economy, accounting for 97% of all business and employing more than half of the region's workforce. At the same time, APAC's bank-dominated financial system means that many small businesses struggle to secure traditional finance. The result is a funding gap that one industry expert believes to be in the realm of $2tn.
That disparity makes the role of alternative finance solutions (provided by both bank and non-bank financial institutions) all the more important, with many small and medium-sized businesses able to utilise financial products such as factoring (debtor finance), receivables finance and supply chain finance (SCF) to propel themselves forward.
Critical though their contribution may be, alternative finance providers need to manage their risk exposure just the same as any other financial institution – particularly now. Earlier this year, the Atradius Payment Practices Barometer Survey for Asia 2022 reported a staggering 60% increase in the number of business-to-business (B2B) bad debt write-offs from the previous year.
Many lenders are already aware of the need to monitor and mitigate risks for profitability and compliance. In one study published late last year, almost three-quarters of financial services decision-makers said that improving the accuracy of their risk decisions would be either a "high" or "critical" priority over the next 12 months.
How exactly can lenders deliver those improvements, though? And what strategies can they employ to strengthen their levels of risk mitigation as a whole?
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