Financial Risk Assessment Risk Management
3 mins read

Going deeper: protecting your business with financial risk assessments

Within the current business trading environment in Australia, cash flow is king. To adequately protect the balance sheet of your business, it is essential that you determine the creditworthiness and payment tendencies of any partner business. As the value of the contract or transaction rises, further in-depth analysis becomes imperative to safeguard yourself against threats of insolvency or default. A detailed Financial Risk Assessment may provide this additional insight, empowering your decision making.

Going beyond business credit scores to uncover comprehensive financial risks

A business credit score check is an important place to start when stabilising cash flow and protecting yourself against potentially insolvent trading partners. A low-cost risk management solution, such as RiskScore by CreditorWatch, is a powerful tool for assessing creditworthiness – utilising three categories of data, including 11 million monthly trade lines. Using sophisticated machine learning technology, it predicts a business’s likelihood of default over the next 12 months, giving you the opportunity to avoid bad credit.

A business credit check, however, is not a fully comprehensive analysis of a partner business. It is highly refined algorithmically, and highly predictive, but there are even more insights that can be gained through a Financial Risk Assessment (FRA) – a comprehensive deep-dive into a business’s financials. FRA’s also include analysis from a qualified industry professional such as a Chartered Accountant (CA) or Certified Practising Accountant (CPA).

Financial Risk Assessments complement business credit scores to provide in-depth risk insights

Following an initial company credit check, the pathway forwards as the trading relationship grows is clear. A full Financial Risk Assessment from CreditorWatch is the necessary tool to ensure the protection of your cash flow from risky high-value, high-volume, or high-credit limit trading partners. It is a complementary piece of the jigsaw, used alongside business credit score checking, through RiskScore, to create a comprehensive risk mitigation strategy for your business.

The detailed analysis provided by a Financial Risk Assessment allows you further insight into the threats of insolvency posed by critical trading partners, whether existing or new. The means by which this is accomplished are extensive, and tiered according to your needs, including:

A deep-dive into company financials – Two to three years of records, inclusive of cash flow, income statements and balance sheets, are assembled and collated for analysis. This is further reinforced with any associated data for that company from ASIC, such as evidence of cross-directorships. This information is unique to that partner business, allowing for tailored and specific advice regarding their payment history trends, insolvency risk, director information and malpractice concerns.

Associated professional analysis from a CA or CPA – Once the appropriate company data has been organised, a qualified CA or CPA will present their key insights on the creditworthiness of the business in question – reinforced with comprehensive reports, graphs and tables.

A Sustainability Assessment – As the tenure of the trading relationship lengthens, it is critical to ensure that there is no future risk of deterioration of a trading partner’s payment or performance. They must continue to supply goods without disruption, pay in a timely manner, and honour the contract fully.

A sustainability assessment can consider the nature of the contract, or credit limit, between the two businesses, establishing the risk profile over time as conditions change. This creates flexibility in your decision-making. For example, it may be the case that a lower value credit limit reduces the risk of trading with that business down to a more sustainable level.

Easy comparison – Financial Risk Assessments offer simplified comparison between them, through uniform formatting and tabulation. When information is easier to read, decisions are easier to make. To get the clearest picture of your risk exposure, each high-value trading partner must be appropriately researched, whether they are already on the books or not. The insights gathered will create the confidence and transparency that your business requires to protect cash flow.

While performing a credit score for business is an important first step, it is one of many layers that come together to minimise your risk exposure and protect your cash flow. With a two-day turnaround, a Financial Risk Assessment is a critical, complimentary tool that could transform the nature of your trading relationships.

To find out how you can access Financial Risk Assessments, or for a free demo on how our suite of credit risk management tools can protect, automate and grow your business, contact us today.

financialriskassessment fra management
Josh Bicknell
Josh Bicknell
Senior Account Manager
Josh Bicknell joined CreditorWatch in January 2022 as a Senior Account Manager. He is passionate about technology and how businesses can utilise CreditorWatch’s market leading solutions to mitigate any potential risks.
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