Undoubtedly, operational risk is a matter of concern to financial institutions. However, on many occasions they focus their resources on important marketing and sales processes, underestimating the operational ones. And the truth is that we should consider operational processes as front line, especially within the working capital and supply chain management industry.
We could define operational risk as any contingency that can cause losses to a company due to human errors, technological errors, defective or failed internal processes, or as a result of external events (fraud, accidents, disasters, etc.). With this definition we observe that it is a type of risk inherent to all processes carried out by human beings. Understood in this way, operational risk would also include “legal risk”.
It is really important to carry out exhaustive control of operational risk in all departments of financial institutions that sell working capital products, especially in the back-office department. In fact, the proper assessment of operational risks is essential, as it will allow financial institutions to protect themselves effectively and efficiently. A successful assessment of these risks is key and can become an important competitive advantage.
For example, poor management in the payment reconciliation processes entails a great operational risk that could end up affecting the relationship with our clients and could incur “legal risk”.
Therefore, we can conclude that, in the execution of processes, all organizations are exposed to a set of risks that have the potential to affect not only daily operations, but also the image and even the growth of the company.
Operational risk can also have a direct impact on a company’s revenue, profit, reputation, and ability to meet its responsibilities. Having adequate operational risk management will become a differentiating element and will surely give us a competitive advantage.
Once these potential risks have been identified, we may not know what to do to start working on their mitigation and effective management. However, technology can be of great help in this regard. The selection of a good technological platform, which facilitates the management of working capital products (automating business processes and avoiding craftsmanship) can avoid many headaches.
Alvantia’s software platform has a sophisticated parameterization system at different levels, exhaustive risk control and automation of all business processes, all aimed at minimizing the operational risks inherent in working capital products.
In addition, Alvantia also offers a specialized consultancy service to financial institutions that sell working capital financing products, both those that are just taking off and those that have extensive experience in the sector.
