The current trading environment for the food and beverage services sector is creating significant downward pressure on cash flow, while amplifying credit risk. This can be attributed to low consumer sentiment, higher inflation levels, supply chain issues, and multiple other factors. For a business in this sector to not just survive, but thrive in 2022 – strengthening their credit risk management is fundamental.

Strengthening credit risk management in the current economy

The latest economic landscape paints a challenging picture for businesses in the food and beverage services sector. It’s important to be realistic about the ongoing difficulties within the current trading environment, so these businesses can best protect themselves from potential cash flow issues and heightened credit risks.

Domestic and global supply chain issues are continuing to hurt consumer sentiment and the profits within the industry. Global supply chains are still experiencing significant delays in the delivery of imported foods, and capital essential to operation. Meanwhile, our domestic transport and distribution infrastructure has experienced unprecedented setbacks, many of which uniquely impact the food and beverage services sector. This includes recent flooding and severe weather throughout Queensland and Northern New South Wales that decimated the domestic supply of some crops, damaged major roads and limited the ability of crucial stock to be delivered.

Rising inflation levels are also slowing consumer demand across a broad cross-section of industries, not least the food and beverage service sector. This means that entities along your supply chain may be increasing their prices, limiting the purchasing and delivery scope of your operations, and thinning your margins. On a consumer level, higher inflation has resulted in the Reserve Bank of Australia hiking interest rates to slow the economy, with discretionary spending likely to fall as a result, hurting the bottom line of millions of Australian businesses. In fact, the latest month-on-month retail sales growth rates, as analysed by CreditorWatch, show that between May and June (the first two months of cash rate hikes in 2022), growth rates have already started to decline.

When consumer sentiment declines in tandem with rising costs along a delayed supply chain, your business can become exposed to high risk factors, such as trading partners delaying payments for invoices, or even insolvency. Statistics from CreditorWatch’s Business Risk Index for July 2022 shows that food and beverage services have the highest probability of payment default in the next 12 months of any sector, at 7.1%.

However, your business is not just another statistic. The very fact you’re reading this article sets you ahead of others in the industry who may feel the brunt of these downward pressures. The good news is that there are a multitude of credit management tools food and beverage service companies can utilise to build a protective shield around themselves from exposure to credit risk and poor cash flow.

Credit risk management solutions for food and beverage businesses

CreditorWatch allows customers to leverage our comprehensive data, including the creditworthiness of new and existing entities, and the likelihood of poor payment behaviour, so you can make better financial decisions. We offer a suite of competitive tools that can give you back financial control, while strengthening your management procedures, including:

Payment behaviour assessments – Consider utilising our comprehensive business credit check reports to make more informed decisions around who you do business with. These business credit reports showcase a company’s default risk (from A1 to F), as well as high risk factors, like recent multiple credit enquiries, any defaults listed, cross directorship information, and other adverse data.

Within these business credit reports, you’ll also gain access to CreditorWatch’s Payment Rating and Payment Predictor data. Payment Rating rates your customers from A to E, according to their payment history, to illustrate their likelihood of paying on time. Payment Predictor showcases a company’s payment history, including the average number of days it takes to pay its bills.

Data-driven risk analysis – CreditorWatch’s RiskScore system – the most predictive scoring product available – illustrates a business’ creditworthiness, and predicts its likelihood of default in the next 12 months. Entities are given a score between 0-850, with a higher score indicating a lower-risk level, so you can make better decisions about who you engage with, and protect your cash flow from payment defaults.

Take it one step further by utilising the CreditorWatch Business Risk Index. This economic indicator offers valuable insights into the health of Australian businesses by region and industry. It assists in measuring the financial health of a business, and may help to forecast its credit risk exposure as well.

Stay alert to supplier changes – Early detection of adverse events from your trading partners along the supply chain is critical in gaining invaluable decision-making time, so your business can avoid credit risk exposure. CreditorWatch’s 24/7 monitoring and alerts system allows you to stay abreast of the latest changes to your clients and suppliers, such as court actions against them or voluntary administration, providing early warning signs so you can proactively mitigate any risks to your cash flow.

Proactive debtor management – Take a proactive approach to debtor management through CreditorWatch’s interactive platform, DebtorLogic. Through analysis of your entire aged-trial balance (ATB), you’ll be able to analyse customer behaviour and identify risky debtors.

This debt management platform will help you compare your customers across industries and states, offering assessment of their payment behaviour based on trends and market insights. Businesses in the food and beverage service sector can then easily adjust payment terms to avoid non-payment and improve collection rates.

Deeper insights into key trading partners – In the current trading environment, it is crucial you have a clear understanding of the financial health of your key trading partners – particularly when supply chains are so fragile. Smaller businesses in particular, often rely on a few major contracts for the bulk of their revenue and operational growth, so it’s important do your due diligence on key partners for peace of mind.

CreditorWatch’s Financial Risk Assessments help you do just that, by providing a more in-depth exploration of the financial viability of your customers, suppliers and contractors. Using company financials, ASIC records, as well as exclusive trade payment data, you’ll be able to view key financial performance indicators, as analysed by a CA or CPA. This information will help you to make better credit and procurement decisions.

All of these industry-leading data-driven tools help businesses in the food and beverage sector solve the challenges of credit risk assessments and protect cash flow. Contact us today to learn more about how our suite of products might assist you in protecting your business from credit risk.