How banks can transform credit reviews in the back book

Discover the easiest way to cut costs and free up Relationship Manager’s time for higher-value tasks

Whenever a business customer takes out a new loan or applies for a new line of credit, they commit to providing financial data on an annual, quarterly, or even monthly basis. This enables banks to carry out regular covenant monitoring and risk assessments to ensure the conditions of the loan are being maintained. For instance, it enables the bank to determine whether a customer is keeping to an agreed debt coverage ratio. The crucial task of collecting and compiling customers’ financial data typically falls on a dedicated team of Relationship Managers (RMs) responsible for supporting credit products post-approval. 

When it’s done well, both the bank and the customer benefit, particularly during times of economic instability where the financial position of a business can change virtually overnight. The bank can spot signs of distress earlier, allowing RMs to step in before situations worsen. Customers benefit from advice on how to navigate turbulent times. With all the challenges facing banks and businesses right now, from rising inflation to staff shortages and supply chain disruption, keeping RMs in close contact with the back book is a high priority. 

The downside? The typical credit review process at most banks is highly manual and time-consuming. It prevents RMs from taking on more valuable tasks like renewals, cross-sell and upsell opportunities. In fact, studies show that RMs at commercial banks can spend between 50% – 60% of their time on administrative tasks that have little to no impact on customer satisfaction or revenue growth. 

These outdated processes ultimately cause friction in customer relationships, slow down service, and demoralize Relationship Managers by taking time away from helping customers and putting it into administrative tasks. 

To counteract this, some banks, especially digital challengers, are beginning to realize the benefits of replacing static files exchanged over email with direct digital connections to customer financials. This creates efficiencies for the bank and greatly enhances RM’s ability to serve and sell to customers. Discover how below. 

What’s wrong with the status quo?

Collecting business customers’ data for debt facilities generally looks something like this:

1. A Relationship Manager contacts a customer via phone or email to request up-to-date financials.

    2. The customer prepares and submits the required data and documentation, either by tracking down and scanning hard copies or uploading PDFs.

    3. The Relationship Manager consolidates this data and standardizes it by typing it into a form or spreadsheet. Alternatively, they pay a costly third-party contractor to do this.

    4. The Relationship Manager follows up with the customer if there is any information that is missing or unclear.

    5. If the data has not been properly standardized, it must be interpreted—that is, someone must try to deduce what different data points mean based on details like account names.

    6. The data is then analyzed by the Relationship Manager, a dedicated Analyst Team, or specialized software like a spreading or monitoring platform.

    7. The Relationship Manager reviews the output and shares an update with the customer. If the resulting credit score does not fall within a certain risk threshold, the customer may be flagged for further review.

    8. The Relationship Manager carries out any associated tasks, such as adjusting credit terms or releasing funds.

    This drawn-out, eight-step process introduces several pain points for every stakeholder:

    👥 Relationship Managers must spend considerable time chasing down customers and completing rote tasks like data entry instead of helping customers run, manage, and grow their businesses successfully.

    🏪 Customers must endure a lengthy, friction-filled application experience—which requires them to gather and prepare their own financial documents for submission—then wait weeks or even months for a decision.

    🏦 Banks often lose control of credit in the back-book and end up temporarily extending facilities when data is still missing, incomplete, or otherwise inaccurate, increasing both direct costs and risk. Even in the best-case scenario, insights from a credit review provide only a one-time snapshot of a customer’s finances, and documents are already outdated at the time of analysis since they provide data from a prior fiscal period.

    For banks, the economic implications can be staggering. Not only do they incur high labor costs and high team turnover rates—based on shifting or seasonal application volumes—they also miss out on key opportunities to generate revenue by cross-selling and upselling financial services. What’s more, the burden placed on customers during the onboarding process can lead to elevated levels of churn, ultimately eroding their profits.

    For example, a bank with a team of 150 Relationship Managers and a portfolio of 10,000 businesses can expect to lose almost £4 million in revenue due to manual, ineffective data collection processes alone. Here’s how:

    Cost of administrative tasks
    *Assuming each Relationship Manager works 7.5 hours/day, 260 days/year, and administration accounts for 40% of their 1,950 annual hours—for a total of 62,400 each year.
    Lost cross-sell and upsell revenue
    *Banks fail to identify 10% of potential opportunities when Relationship Managers spend excess time on manual data collection and lack an adequate understanding of customers’ financial needs and overall performance.
    Lost revenue due to customer attrition
    *Banks lose 2% of their portfolio each year to alternative lenders. If each is a term loan of £10K at a 6% interest rate over a 3-year period, that amounts to a £2K total profit loss (£1,800 in interest fees + £200 loan fee).

    Unlocking faster, smarter credit reviews

    Innovative technologies are now allowing banks to automate the data collection process by integrating with the accounting software their customers use and streaming verified financial data in real-time, straight from the source. And many banks are improving their risk management by accessing additional data points they typically wouldn’t ask for, such as Aged Debtors Reports, enabling them to paint a detailed picture of their customers.

    That not only saves banks time and money on administrative tasks, it streamlines the credit review process from end to end and delivers a better experience for their customers and Relationship Managers alike. As a result:

    👥 Relationship Managers benefit from less document tennis and manual data entry, enabling them to spend more time getting to know their customers and identifying opportunities to cross- and upsell new financial services.

    🏪 Customers enjoy simpler ways to share their data, provide reliable, comprehensive evidence of their financial health, and secure faster, more affordable access to credit.

    🏦 Banks gain instant, ongoing access to accurate financial data, allowing them to reduce both costs and risk—and to maintain a steadier, happier relationship team that’s focused on growing their business.

    Here’s how it works:

    Comparing an automated solution like Codat to the manual tasks above, the credit review process is reduced by more than half—from eight steps to three:

    1. A Relationship Manager logs in to Codat and requests financial data from a customer, triggering an email link for the customer to connect. Alternatively, Codat’s login flow is embedded directly in the bank’s digital platform, so the customer can connect to their accounting system without ever leaving the application.

    2. The customer connects to their accounting platform by entering their credentials.

    3. The Relationship Manager can instantly access the customer’s accounting data via the Codat portal—either by downloading it (as an Excel file) or loading it directly into an existing file management system (like Sharepoint) or specialized monitoring/spreading software.

    This data can then be refreshed—or re-downloaded—at any time, ensuring the bank always has trustworthy, up-to-date financial information on which to base their credit decisions.

    The bottom line

    Your Relationship Managers have better things to do than paperwork (like helping customers). Free up their time by automating your data collection processes and streamlining your credit reviews—and unlock lower operational costs, more reliable data, and a better customer experience, to boot.

    Learn about the benefits of connecting RMs with customers using secure and direct data-sharing technology

    Reach out to Codat’s team for a closer look at the benefits of direct connections to customer financials—or register for a free account to test out our solution and discover what real-time financial data can do for you.