How KYI Benefits Banks and Financing Institutions

6 min readMar 31, 2023

In the following lines, we’ll discuss how KYI benefits banks and financing institutions.

Insufficient cash flow is one of the core issues that a business faces. Irrespective of their size, businesses are always in need of cash. At the same time, some businesses are always in need of lending their money. The question arises why don’t businesses needing cash borrow from the businesses that lend cash? The answer to this question isn’t very simple, let’s try to make it simple somehow.

Banks and financing institutions that lend money, lend it for profit. In the case of specialized financing institutions, it is the primary source of profit for them. To remain profitable and operational, they need to lend their money to businesses that can pay back and won’t default. To ensure this, the financing institutions need to secure themselves before extending any loan. For this, they need to know a lot about the businesses seeking loans from them. They need to know about the financial health, business state, track record, and business practices of the clients aspiring for the loan. They need to know about the revenue streams through which the business will be able to pay back the amount borrowed from them.

To know all this the FIs have to go through some standard compliance for due diligence.

KYC (Know Your Customer)

The most commonly known due-diligence compliance practice in the industry is known as KYC. KYC stands for Know your customer(s) or client(s). KYC is standard practice for almost all financial institutions. Alternatively, KYC is also known as KYB or know your business. KYC at its core is knowing every relevant thing about the client of financial services. KYC has three major aspects from a financial institution’s point of view.

Securing finances
Avoiding risks of financial crimes
Barring black money and crime proceeds

Financial compliance is governed by many laws and regulations.

Especially after nine eleven, governments across the globe have found it necessary to regulate the monetary activities within their jurisdiction. Money Laundering and terrorist financing are global concerns. The financial action task force (FATF) puts special emphasis on making financial activities fully transparent.

These factors have made KYC a mandatory practice for financial institutions.

KYC is a set of multiple practices that includes;

Establishing the identity of the client/customer
Understanding the nature and practices of the customer’s business.
Knowing the financial health of the customer’s business.
Evaluating their financial sources.
Assessing the money laundering/proceeds of crime, and risks associated with the customer.

To ensure all these FIs have to perform due diligence which is time-taking, tedious, and costly.

KYC for Financing

KYC helps banks and FIs in securing their loans. With KYC, FIs can gather vital relevant information about their financing client’s identity, business nature, financial health, and payback capacity. The due diligence process is lengthy but it is worthwhile considering the long-term nature of the loan and the profitability involved.

KYC for Invoice Financing

Invoice financing is a type of financing where a business gets financing against its receivable invoices (accounts receivable). The business uses its receivable invoices as collateral. Unlike other types of financing, the due diligence for invoice financing requires more critical and focused information. Unlike other business financings, where tangible fixed assets like land, building, plant, machinery, stocks, or bonds, invoice financing is based on single collateral, that is the invoice. As an invoice is an internal document between buyer and seller not having any legal coverage, KYC for an invoice needs to be more rigorous and in-depth. As the financing term of the invoice is very short (usually a few weeks or months), it is not financially viable for FIs to spend this much time and effort on such a short-term investment. This is why normal KYC practice fails as due diligence for invoice financing. Considering these challenges, FIs are usually not interested in Invoice financing.

The Challenges of Invoice Financing

To establish the authenticity and integrity of an invoice, the due diligence needs to verify the following three aspects of an invoice:

The buyer
The seller
The transaction (invoice)

To establish these facts long, tedious, and costly due diligence is required. As discussed earlier, the invoice is an internal document of a business, it can be subject to various kinds of fraud and deficiencies. Major issues with invoices presented for invoice financing can be:

Fake Invoices

These are the bogus invoices that are generated in thin air without any actual transaction ever happening.

Misrepresentation of Facts

An invoice against which the cash is already received or the credit period is shorter than the represented one.

Hidden Disputes

A transaction between a buyer and a seller can be subject to multiple disputes like sales return, amount, or quantity.

Duplicate Financing Request

An invoice already financed by an FI is presented to another FI. This type of fraud can happen in multiple locations or even countries

Collusion between Buyer and Seller

In this type of invoicing fraud seller collude with the buyer as an organization or with some staff member of the buying organization and draw fake or tampered invoices.

Considering the above challenges, we can establish that conventional KYI is not viable for invoice financing. The challenge that arises here is what kind of due diligence is required for invoice financing. Conventional KYC can give information about the buyer but can’t independently establish the integrity of the transaction.

The Solution

InvoiceMate brings a revolutionary solution of compliance for invoice financing. This is called KYI (Know Your Invoice). KYI effectively addresses the third aspect of invoice financing compliance, which is establishing the integrity of the transaction

KYI (Know Your Invoice)

InvoiceMate is the world’s first invoice management system that is powered by the blockchain. Every stage of the invoice processing journey is recorded on the blockchain. This makes the critical information about invoices tamper-proof and immutable. Simply put, a transaction done on the blockchain can’t be tampered with, or deleted once recorded in a block. InvoiceMate puts the critical datapoints of the invoice journey on blockchain and the integrated AI Bot verifies different invoice-related information based on defined parameters. At the same time, credit scoring and risk profiling are automatically done through sophisticated algorithms. All this happens in real time and is always available on demand.

How Banks and FIs can benefit from KYI

KYI is available as 3rd party compliance service. Banks and FIs can get this service integrated into their financing system. They are always in a position to make informed decisions about invoice financing for a particular customer. This information is always available and at a very low cost. KYI not only verifies the integrity of the transaction but also the same about the buyer and the seller of a transaction. This way banks and financing institutions can get an effective and economical fraud-resilient, speedy compliance service that is always available.

KYI can help FIs acquire new clients and expand their business horizons like never before.

The benefits of KYI for Banks and FIs can be summed up as follows:

Fraud-resilient & speedier invoice financing cycle that reduces operational costs & avoids bad debts.
Efficient compliance & due diligence with deep insights into the entire journey of invoice and relevant supporting documents
AI-powered algorithms for risk profiling & credit scoring of invoice financing applicants.
Growth with onboarding of new financing clients through an Innovative marketplace

By extending invoice financing to MSMEs and informal small businesses, financial inclusion according to United Nations Sustainable development goals (UNSDGs) can be materialized. This financial inclusion can contribute to the economies of countries like Pakistan, where most businesses die because of no access to financing.

Learn more about KYI.

To know more about InvoiceMate visit invoicemate.net