CONFIRMATION AND CORROBORATION IN LEASING

A lessor did a transaction in which the lessee presented postdated cheques, bank statements, staff ID card, house address and pro-forma invoice, as part of the requirements for the lease. The lessor only realised that the information given by the lessee were false after the transaction went bad.

This true story remains a reoccurring decimal in the industry facilitated by weak risk assessment.

Risks analysis is essential to the business of leasing- involving a thorough analysis of both the intended lessee and the proposed facility. Two related areas of concerns are Confirmation and   Corroboration, which are often most neglected in the risk assessment process – causing enormous loss to the lessor.

It is important that the lessor ensures due diligence by verifying (Confirmation) and validating (Corroboration) information provided by the lessee. It is very easy for the lessor to fall into the trap of not confirming and validating information (taking information at face value) perhaps due to pressure to close the deal.

The sources of verification and corroboration may include the lessee’s banker’s auditors, credit bureau, suppliers and customers as well as independent findings by the lessors such as from the competitors of the lessee. The source used in making credit decision must be analysed and understood-any material items are noted and ensure that adequate information is available for the lessor to make a proper decision.

Essentially, confirmation and corroboration contribute to answering the key question of, do I really know enough about this particular customer, his market and the asset being requested to commit funds?”

 

Always remember that:

“Complacency is the greatest risk in risk business; vigilance and careful thought are the greatest weapons”

ELAN ADVISORY SERVICE

For more information: 08023176691, 08023179048, Info@elannigeria.org