Business advisory group Duff & Phelps has urged peer-to-peer lending platforms to look at their cashflow to forecast potential problems and act early.
Mark Turner, managing director, regulatory consulting at Duff & Phelps, said platforms should keep an eye on their cashflow and ensure they have a liquidity profile that will enable them to repay money to investors and to be able to sustain losses and liquidity stresses on the borrower side.
“Platforms need to know what’s happening in the market and where there are stresses and they can then take steps to monitor these and engage with borrowers and lenders proactively,” Turner said.
“It’s about staying on top of problems and taking action before it’s too late in the process and the stresses are more severe.
“For example, if you have to put up a gate to borrowers and lenders and stop them making redemptions, if that’s coming, communicating that and putting a gate in place sooner rather than later, may be the right thing to do.
“If you put it up too late you are not acting in the best interests of customers and risk potentially leaving them with more loans that have a higher rate of default and are more difficult to get their money out of.”
Turner added that platforms must deal with borrowers facing difficulty making repayments on a case-by-case basis and act in the best interests of the customer while protecting the platform’s business.
“There’s a risk of adopting a broad brush approach and of platforms taking action as soon as the borrower is one day late with a payment, which may not be the right thing to do in each case,” he said.
“Platforms also have commercial interests and need to run viable businesses so they must strike the appropriate balance between helping borrowers and protecting the business, which in a more stressed environment is more difficult to do.”
Read more: Shelter in the storm
Businesses and investors may run into financial trouble when the furlough scheme ends on 31 October.
Turner said on the investor side, lenders may need access to their money quickly if they are in personal distress with Covid-19 and might make sudden withdrawals to get their investment back and platforms need to be able to manage that process effectively.
Read more: Dangerous waters
Chris McLean, head of debt advisory at Grant Thornton, said that up to date data is essential for forecasting cashflow problems.
“The timelier data you have, the better,” he said.
“It allows you to see problems coming through, and helps you look at trends as well. We’ve been advising our clients whether they are companies or platforms, to be doing daily cashflow forecasting so that you can know instantly if customers are a day late with payments.
“It might not be a problem, but at least you know about it.”