Assessing the creditworthiness of companies is a key task for various financial service providers. In addition to the balance sheet and income statement, the statement of accounts offers a very granular basis for assessing creditworthiness that is not available to every company. We have summarized some of the advantages of the statement of accounts at the end of the article.
However, recording each individual account and its amount is very time-consuming. It can take more than 20 minutes to collect data from financial reportsto enter all relevant data manually.
In this article, you will therefore see how data collection can be automated with the help of AI and, in a next step, transferred into a machine-readable and internationally recognized format.
Credit assessment of companies
The terms credit check, creditworthiness, credit capacity and KYC are often used in connection with lending and customer checks by banks, but have different meanings. The Difference between creditworthiness, credit capacity and KYC can be read in detail in a separate article.
In addition, the credit assessment promotes well-founded strategic decisions. On the basis of detailed creditworthiness analyses, companies can optimize contract terms and demand collateral, which strengthens their negotiating position and creates an in-depth understanding of the financial stability of potential partners. This contributes to the development of a more robust risk management strategy and secures long-term competitive advantages.
Checking creditworthiness not only offers security and stability, but also supports sustainable corporate development. By knowing the creditworthiness of their business partners, companies are better equipped to proactively meet the challenges of the market and make targeted use of opportunities.
Business Reporting Language (XBRL)
The eXtensible Business Reporting Language (XBRL) is an internationally recognized standard for the exchange and transmission of business information. XBRL enables efficient and precise communication of financial data between different systems and organizations.
By converting a financial report in PDF format into an XBRL, data points contained in PDF become machine-readable and can be analyzed in a structured manner. This leads to improved transparency, higher data quality and a significant reduction in the manual effort involved in reporting. XBRL thus makes a significant contribution to increasing efficiency and accuracy in finance and automates parts of the creditworthiness check.
By integrating artificial intelligence, banks and financial institutions can automate the rough summarization of financial reports and thus prepare PDF documents for conversion into XBRL format.
Automation of the credit check
Konfuzio offers the possibility to process financial reports. For the automated recognition of financial reports, Konfuzio uses automatic character recognition, Document processing and the AI-supported Extraction and Classification of data. In this way, the software can recognize and read out the relevant fields of the financial report and make the information it contains available to target systems for balance sheet criticism. In the section below you will find examples of how the recognized data can be analyzed for banking purposes.
The extraction and aggregation of account statements enable the automated collection of relevant information. This serves as the basis for the credit assessment of companies. The AI-based extraction and provision of financial report data and Konfuzio's intelligent preparatory work minimizes errors and speeds up the credit check process in the long term.
How can AI support the lending process?
By integrating artificial intelligence (AI) into the credit check, banks and financial institutions can automate the rough summarization of financial reports and thus prepare PDF documents for conversion into XBRL format.
The advantages of intelligent credit checks are
- Faster decision making
- Higher accuracy
- Lower credit risk
- Reduced operating costs
This automation leads to accelerated decision-making and significantly increases the precision of creditworthiness analyses. By reducing credit risk and lowering operating costs, the AI-supported credit assessment significantly optimizes efficiency in risk management.
The use of XBRL also promotes the smooth and error-free transfer of financial data, which increases transparency and data quality.
Technical digression on the advantages of proof of account in credit checks
A meaningful statement of accounts forms the basis for precise balance sheet and income statement preparation. It ensures that all business transactions are recorded completely and correctly. A detailed statement of accounts enables a reliable assessment of a company's financial stability, particularly when checking creditworthiness. Only through transparent and audit-proof accounting can sustainable sources of income be distinguished from non-recurring or uncertain income, which is essential for assessing the ability to service debt.
A creditworthiness check can be carried out on different bases.
- The balance sheet and income statement provide a summarized presentation of a company's net assets, financial position and results of operations.
- The account statement goes beyond this and shows the individual account movements and their exact composition.
The main difference is that the balance sheet and income statement only show closing balances, whereas the statement of accounts enables a detailed analysis of movements within a financial year.
Precise assessment of liquidity movements
- In the balance sheet, total bank balances are recognized as a single figure.
- The statement of accounts shows how this credit balance came about, whether it is the result of constant payments or one-off special effects.
Relevance for the credit check
A bank can see whether liquidity is sustainable or merely a snapshot in time. A regular supply of liquidity through recurring income signals financial stability.
Detailed analysis of the receivables
- The balance sheet only shows the total amount of receivables.
- The statement of accounts shows what type of receivables exist - those that can be realized in the short term or those with long payment terms.
Relevance for the credit check
A high level of receivables can put a strain on liquidity if customers pay late or there are receivables from problematic sources. The statement of accounts shows whether these are active business receivables or disputed amounts that are difficult to collect.
Traceability of operational cost structures
- The income statement shows the total operating expenses, but not their individual composition.
- The account statement shows specifically which suppliers, cost types and purchases represent the highest charges.
Relevance for the credit check
A bank can recognize whether cost management is efficient or whether the company has high operating expenses without sufficient income. This is crucial for assessing financial sustainability.
Transparency regarding operating liabilities
- Total liabilities are summarized in the balance sheet without identifying the source from which they originate.
- The statement of accounts reveals whether the liabilities result from supplier credits, outstanding tax obligations or structural liquidity bottlenecks.
Relevance for the credit check
A significant tax liability or regularly late payments to social security institutions may indicate structural payment problems. This could increase the credit default risk.
Recognition of one-off or irregular business transactions
- Non-recurring income or extraordinary expenses do not appear separately in the balance sheet or income statement.
- The statement of accounts reveals whether a profit was generated by operating income or merely by non-recurring special effects.
Relevance for the credit check
A one-off profit from a single sale cannot provide a reliable basis for the long-term repayment capacity of a loan. Banks therefore check whether profits are recurring and result from the core business.
Restrictions on a credit check without proof of account
Limited informative value about cash flows
The balance sheet and income statement only show inventory figures and balances, but no cyclical payment movements. This means that a bank cannot recognize whether the company has a regular cash flow or only holds short-term liquidity.
Lack of transparency regarding financing and investments
Without an account statement, it remains unclear whether investments were made using own funds or external financing. A high level of investment activity can be positive or negative, depending on the underlying financing.
No detailed analysis of the liability structure
A high liability item in the balance sheet can result from long-term, well-structured debt capital or from short-term pressure from outstanding liabilities. Without a statement of accounts, this distinction is not possible.
Effects on lending
Influence on the credit conditions
If the bank recognizes through the proof of account that the liquidity comes mainly from regular income, this could lead to more favorable credit conditions.
Risk assessment through detailed creditor structure
A bank can use the proof of account to assess which creditors have priority and whether a potential loan would be jeopardized by existing obligations.
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