Factoring system for financing showroom cars for ŠkoFIN s.r.o.

Description of the client

Practically since the time it was established, ŠkoFIN s.r.o. has been one of the leading finance companies in the Czech market that is focused on financing and supporting automobile sales and providing vehicle fleet services as well as other related services. The portfolio of products offered by the company includes car loans, automobile leasing, operational leasing, and motor vehicle and supplemental insurance. Its unique position in the Czech market is due to its asset relationship with one of the world’s leading car manufacturers (i.e. not a bank). One of the results of this situation is that the company has a high level of equity, thanks to which it is one of the Czech Republic’s leasing companies with the strongest capital structure.

According to the evaluation performed by the Czech Leasing and Finance Association (CLFA), ŠkoFIN has continued to maintain its number one position in the market for financing personal cars and utility vehicles in the Czech Republic. In 2011, ŠkoFIN reported revenue from sales of CZK 5.7 billion. The company has approximately 200 employees.
Initial situation

In 1999, Volkswagen Financial Services AG, as ŠkoFIN’s parent company, assigned the company’s management the task of attaining the following objectives: increase the volume of provided leasing (the company’s returns) and increase the volume of the group’s automobiles sold in the Czech Republic. In spite of the success achieved in providing leasing and loan services to end consumers, management continued to look for additional financial services that could help to achieve these objectives, specifically services that would make use of the unique advantages that ŠkoFIN has over the competing leasing companies – primarily a closer relationship with automobile manufacturers and the dealer network.
In mid-1999, a project was launched with the aim of preparing an offer of modern financial services that would satisfy the demand in both of the market segments to which ŠkoFIN has the closest ties. This meant shifting attention from the end consumer to other links in the supply chain – to evaluate the issues from the perspective of dealers and to then present the concept to the suppliers, primarily Škoda Auto, a.s.

Our solution

Factoring is a method of operational financing based on the assignment of receivables. Basically, a third party (a factoring company) enters into the seller-buyer relationship and purchases the seller’s receivables due from the purchaser. Firstly, this relieves the seller of the task of having to administer the receivables, and, secondly, it improves the seller’s cash flow.
The factoring system developed at ŠkoFIN in cooperation with KOMIX involved the manufacturer (ŠKODA VW), the extensive ŠKODA dealer network, and the cooperating banks. The role of KOMIX was not limited to just the creation of the support software, i.e. the factoring information system. KOMIX was involved during the very first phase, when the client’s requirements were defined in detail (in the form of a structured requirements catalogue) and was also active in designing the entire process.

In this case, the process was defined as follows: The supplier (Škoda Auto) delivers new cars to the customer (the dealer) and issues an invoice for these goods. This invoice is electronically transferred to ŠkoFIN’s factoring application. After the automatic verification of the application for financing and the automatic check of the data, the receivable is booked and immediately electronically paid to the supplier. From that moment on, the dealer’s creditor is not the supplier, i.e. Škoda Auto, but rather ŠkoFIN, which assumed all of the payment flows and the management of the receivable.
The framework contract signed between the supplier (Škoda Auto), the financer (ŠkoFIN), and the customer (the dealer) defines a maximum limit for open receivables. This limit depends on the individual assessment of each client using ŠkoFIN’s internal methodology.

This factoring system was custom designed for the group’s dealer network with the goal of ensuring maximum financing flexibility, minimum demands on administration and time, and user-friendly online access that will allow the dealer’s company to access various information that will make it possible for the dealer to improve cash-flow management, such as the use of financing limits, financing costs on a car-by-car basis, information on payments and the offsetting of receivables, detailed pricing and technical information for vehicles and their accessories, information from warehouse inventories, overviews of payment inaccuracies and any missing payments, and all of the information that is required for releasing a vehicle’s technical certificate. Taking into account various security aspects, this system was made accessible to only a specific group of authorised users and only within Škoda Auto’s external network.

After two years of preparation and testing, the system was launched in pilot mode in December 2001. It started to be actively offered to dealers in September 2002.

Evaluation – benefits for the client

The best evidence of the commercial success of factoring can be found in the numbers. In 2003 (the first full year of the service), factoring was used to finance 35,438 vehicles. Three years after the initial launch of the system, the financial volume of factoring exceeded CZK 20 billion for one calendar year.

The advantages of the electronic communications between the various parties involved in the process include the unquestionable reliability of the documents; the verifiable authorisation tasks; the validity of the documents for legal, accounting, and tax purposes; and the ability to generate hardcopy outputs for the needs of auditors, the tax authorities, the courts, and others.

From the strategic perspective as monitored by the management of the Volkswagen Group, it is important that, by using this product, ŠkoFIN has successfully strengthened the financial stability of the dealers selling the cars manufactured by the members of the VW Group, thus also greatly increasing the effectiveness of the sale of the group’s cars to end consumers. In 2011, there were 225 VW Group dealers participating in the factoring process. Additional evidence of the positive impact that factoring has had on the development of credit and leasing is reflected in the fact that, on 30 June 2011, ŠkoFIN celebrated the signing of its 750,000th leasing agreement.

Technology used

WebSphere, JacORB, Java, DB2, Unix, Windows, and AS/400