CreditorWatch Financial Risk Assessment Onboarding Risk Management
5 mins read

How Financial Risk Assessments can power up your onboarding process

In the ever-changing realm of finance, where uncertainty looms and economic conditions can shift rapidly, conducting proper due diligence of vendors and customers through financial risk assessments (FRAs) has never been more important. As businesses strive to navigate the complexities of today’s turbulent economy, they face a multitude of challenges that demand meticulous evaluation and proactive decision-making. To ensure unwavering confidence when entering into high-value contracts, the implementation of comprehensive financial risk assessments, particularly for high-risk industries like utilities and energy, is essential 
In this article, we delve into the value of comprehensive financial risk assessments particularly in the utilities and energy sectors. Through a deeper understanding of vendors’ financial position that FRAs provide, businesses operating in the utilities and energy sectors can effectively manage the inherent uncertainties and make more informed decisions that drive sustainable growth and success. 

What is a Financial Risk Assessment?

A Financial Risk Assessment is a comprehensive report that enables businesses, including financial institutions and financial services companies, to understand the financial viability of their customers, suppliers, and contractors. It helps assess whether your trading partners have the capacity to fulfill their financial obligations, such as making timely payments, ensuring uninterrupted supply of goods, and honouring contractual commitments. This level of risk analysis is crucial, especially for industries dealing with automation, regulatory challenges, anti-money laundering (AML) concerns, and Know Your Customer (KYC) compliance, which are paramount in financial services. 

As we have witnessed all too often recently, the collapse of a major supplier or delinquent payments from key customers could lead to significant financial loss for businesses, exposing them to substantial risks. By evaluating the reputation and financial stability of the entities you engage with, you can make informed decisions when selecting trading partners, thereby safeguarding the growth of your business and mitigating risk factors. 

Why the extra level of protection for the utilities and energy sectors?

Given the challenging trading conditions experienced by suppliers, including supply chain disruptions, labour shortages, and rising costs, the financial outlook for businesses in the utilities and energy sector has become highly precarious.  
In such a high-risk environment, it is crucial for financial services businesses and companies to have comprehensive and accurate information about their trading partners. This helps eliminate guesswork and enables more informed and confident decision-making, especially when dealing with AML concerns, audits, and KYC compliance, which are critical risk factors in financial services. 

To thoroughly analyse the financial viability of a supplier, the gold standard is a full Financial Risk Assessment from CreditorWatch. This assessment provides a detailed examination of the supplier’s operations, empowering your business to engage or avoid trading with them with confidence. 

How can utilities and energy businesses use FRA's to perform proper due diligence?

Financial Risk Assessments show critical insights about companies’ payment behaviours. Here are some ways utilities and energy businesses can leverage Financial Risk Assessments: 

Client Onboarding: When bringing new customers on board, conducting a Financial Risk Assessment helps gain insights into the prospective customer’s financial stability and creditworthiness up front. This assessment guides the determination of appropriate credit terms, payment arrangements, and risk mitigation strategies before proceeding with the onboarding process, ensuring a positive customer experience from the start. 

Due Diligence: FRAs play a crucial role in due diligence processes for utilities and energy businesses. These businesses often engage in mergers, acquisitions, or partnerships to expand their operations or diversify their portfolios. Before entering such transactions, it is essential to assess the financial health of the target company. FRAs enable businesses to evaluate the financial risks associated with the target company, including payment behaviours, debt obligations, liquidity position, profitability, and overall financial stability. This information empowers businesses to make informed decisions regarding the potential risks and rewards of the transaction, with specific attention to AML concerns, audits, and customer experience. 

Vendor Analysis: Utilities and energy businesses rely on various vendors and suppliers to support their operations. By conducting FRAs on potential vendors, these businesses can assess their financial viability and ability to fulfill contractual obligations. This analysis helps identify potential financial risks associated with the vendor that could impact business operations’ continuity or lead to disruptions in the supply chain, affecting customer experience. 

What information does a CreditorWatch Financial Risk Assessment provide?

The Financial Risk Assessment utilises company financials, ASIC records, and CreditorWatch’s exclusive trade payment data. An experienced analyst then evaluates all this information to generate customisable reports on payment behaviour trends, ratios, and key financial performance indicators, including risk scores, over a two- to three-year period.  
Additionally, you can receive a personalised interpretation of their financial strengths and weaknesses, expert forecasting, and recommendations on implementing a specific risk management process to protect your business. 

Breakdown of key features:

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

The assessments are presented in a user-friendly manner, enabling you to clearly understand the implications of this data for your business.

Is the report automated or prepared by a professional?

Unlike cookie-cutter financial assessments provided by other credit reporting bureaus, CreditorWatch’s FRAs offers four levels of concise, reliable analysis from a Chartered Accountant (CA) or a Certified Public Accountant:

  1. Financial Risk Assessment – Your supplier or contractor’s financial data is assessed over a two-to-three-year period. You’ll be provided with a report on trends, ratios, and explanations on key financial performance indicators.

  2. Financial Risk Assessment with Analysis – You’ll gain a tailored and detailed financial risk assessment of supplier or contractor’s financial strengths and weaknesses, as well as financial trends, expert forecasting and recommendations.

  3. Financial Risk Assessment with Contract Assessment – Similar to the above, you’ll also gain an additional assessment of your supplier or contractor’s value.

  1. Financial Investigative Report with Contract Assessment –The most detailed report designed to assess your strategic suppliers and contractors and their contract value.

The level of detail in a Financial Risk Assessment is dependent upon the amount of financial information provided to CreditorWatch on which to conduct the assessment. Broadly speaking, there are three options when it comes to the provision of information:

  • CreditorWatch relies on ASIC financial data.
  • Financial data is shared with CreditorWatch.
  • CreditorWatch works directly with the vendor or customer that is being assessed.
How long does it take to get an FRA?

By outsourcing your financial assessment to CreditorWatch, you can obtain your Financial Risk Assessment report within two days. This rapid turnaround is invaluable for businesses, particularly when they may not have the capacity to conduct this complex financial analysis in-house, ensuring a quick response for your financial services and reducing risk factors. 

Interested in ordering a Financial Risk Assessment? Get in touch with one of our experts now.

financial risk financial risk assessment fra management onboarding
Adam Bailey
Enterprise Director
Helping Organisations Mitigate Financial Related Risks & Enhance Credit Decisioning Models
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