Credit Management CreditorWatch Risk Management
3 mins read

An Introduction to Financial Risk Assessments

An introduction to Financial Risk Assessment

Financial Risk Assessment provides a comprehensive look into the financial viability of your customers, suppliers and contractors. By assessing the reputation and financial stability of entities you work with, you can choose the right trading partners and safeguard business growth. Use Financial Risk Assessment reports to confidently make credit and procurement decisions and mitigate risks upfront.

Through using financial risk management you can find out if your trading partners can pay you on time, supply goods without disruptions and honour their contracts. The collapse of a major supplier or delinquent payments from key customers could have potentially fatal consequences for businesses placing them at potential high risk. A Financial Risk Assessment helps to protect your business from potential issues like court actions, project delays, project renegotiation costs and bad debts.


Who is a Financial Risk Assessment for? 

A Financial Risk Assessment is valuable for credit and procurement managers across all industries. It is important to analyse an entity’s financial reporting performance before making financial decisions such as granting credit and signing major contracts.

Businesses use Financial Risk Assessments to:

  • Perform due diligence for customers and contractors; at the start of a relationship or during an annual review
  • Assess the suitability of new contracts or credit limit offers to mitigate mid-level/key risk
  • Assess strategic and top trading partners, high value contracts and large credit limits

CreditorWatch offers multiple levels of Financial Risk Assessment reports to meet the varied needs and level of risk facing of our customers, in both the trade credit and procurement space.


Financial Risk Assessments for Procurement 

Financial Risk Assessments help procurement managers assess suppliers and contractors and make better procurement decisions.

Whether you are procuring products or services, it is important to understand your supplier’s financial viability and mitigate risks upfront. When handling critical contracts or sizeable tenders, a Financial Risk Assessment can help you make risk management strategies and choose the right supplier or contractor. By making sure you’re dealing with the right people, you can avoid issues like project delays, supply chain disruptions and the costs of failed contracts.

A procurement report is valuable for two main reasons:

  • Financial risk: It protects you from the costly repercussions of dealing with the wrong supplier or contractor and any procurement risk. Are they able to deliver the right services? Will they be able to finish their contract? Should you accept their requests for advance payments?
  • Reputational risk: If you’re unable to deliver products and services to your customers, the reputation of your business is at stake. The failure of your supplier could have damaging knock-on effects for your reputation and brand. It could erode customers’ trust in your business and hinder future opportunities.


Financial Risk Assessments for Trade Credit 

Financial Risk Assessments help credit managers and CFOs assess customer credit limits and be proactive in accurate credit decision-making.

A Financial Risk Assessment complements a credit report by revealing an entity’s financial performance and financial risk in addition to its credit history and credit risk. Businesses can strengthen their due diligence processes by using insights gained from separate sets of data and analytics to assess key customers, credit limit increases and large deals.

Small to medium businesses often use Financial Risk Assessments to find out more about exactly who they’re dealing with. Meanwhile, larger companies use them to learn more about their top 20 to 30 per cent of clients.


Features of Financial Risk Assessments 

For each Financial Risk Assessment, an experienced analyst reads and assesses an entity’s financial data, including cash flow, income statements and balance sheets, over a two-to-three-year period. Data is obtained from company financials, ASIC corporate records and CreditorWatch’s exclusive database.

Save time and effort by outsourcing the complex task of going through thousands of pages of financial statements. A Financial Risk Assessment report provides a succinct and reliable summary about an entity’s financial health, using simple explanations, graphs and tables. Its standardised format also makes it easy to compare entities.

Our Financial Risk Assessments contain:

  • Organisation summary
  • Financial risk rating
  • Probability of default
  • Financial performance summary
  • Key financial performance indicators
  • Financial trend graphs
  • Key ratios
  • Suitability assessment (of credit limit or contract value)
  • Professional opinion by a CA or CPA

We offer a tailored and detailed analysis of an entity’s financial condition, credit limit request, potential risk or contract value. This includes a custom interpretation of their financial strengths and weaknesses, an analysis of financial trends over time and tracking of key financial indicators.

Each report is made to order, which means we always factor in the economic and industry outlook at that time. Based on an overall assessment of their financial performance, we provide expert forecasting and recommendations on how you can protect your business with a specific risk management process.

CreditorWatch helps businesses assess the financial stability of their trading partners, empowering them to make confident business decisions. Our Financial Risk Assessments can be produced in two days, at a competitive market rate. If you’d like to find out more about Financial Risk Assessments for your business, get in touch with us today.

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