Financial Risk Assessment Insolvency
3 mins read

Using Financial Risk Assessments to protect your business from insolvency

When making purchases on behalf of your business, it is imperative that your suppliers and contractors are trustworthy, creditworthy and timely in the delivery of their products. There are safeguards that can be put in place, and a Financial Risk Assessment is a key component of a comprehensive credit risk management strategy.

Poor procurement decisions can lead to insolvency

Procurement decisions refer to purchasing decisions that a business makes, often concerning products necessary for their own chain-of-production. A simple example is a bakery determining from whom, and at what price, they will buy the flour necessary to make bread. This decision has a large impact on determining the overall cost-of-production. Furthermore, a business’s ability to supply its own goods depends on the reliability of its suppliers.  

When the wrong procurement decisions are made, your whole operation can be placed at risk. Within the high-cost trading environment we’re currently witnessing, especially as it pertains to raw materials like wheat and fuel, these decisions are even more critical to the survival of your operations. Any insolvency threat from suppliers, hike in prices, or disruptions to their supply, may force you to enter default territory yourself.

In the example of the bakery: their supplier for raw materials, such as flour and milk, may recently have been exposed to volatile international trading prices, a domestic shortage of skilled workers, and recent natural disasters including floods. Any or all of these events are serious enough to threaten said supplier with insolvency or payment default. Should the supply of flour to the bakery dry up, their ability to make bread effectively ceases until this can be rectified. Considering that the bakery still has to pay its ongoings, such as rent, a lack of flour supply can be enough to affect the survivability of the whole operation. 

Any break in the chain-of-production, from your supplier through to your customer, can have devastating financial and reputational implications. If a customer believes that your provision of goods is fickle, they may search for a more reliable competitor business to provide these goods or services. This means any disruption, even if only temporary, can potentially hollow out your customer base, and damage their perception of your business. Understanding the risk profile of suppliers when making procurement decisions is the security your business needs to help guarantee and reinforce this chain, keeping the flow of product steady and customers happy.

Use Financial Risk Assessments to protect your business from insolvency

The deepest insights for procurement decisions can be gained through CreditorWatch’s Financial Risk Assessments. These are comprehensive financial reports that reveal the financial viability of a prospective or current trading partner.

Reporting on the financial viability of suppliers gives your business an insightful, detailed perspective on their trustworthiness and reliability. The more critical their goods are to your chain of production, the more necessary it is to ensure that they are at minimal risk of insolvency or disruption.

A Financial Risk Assessment is a must-have solution if you’re seeking to make the most informed procurement decisions. It utilises company financials over a two-to-three-year period, as well as ASIC records, and CreditorWatch’s extensive trade payment data, accompanied by succinct analysis from a qualified CA or CPA. When applied to multiple entities, you can easily compare businesses through uniform formatting – creating transparency and reliability in order to select the trading partner that poses the lowest risk of insolvency or disruption to your business.

Prepared and ready within two days, with accompanying assessment of any contract details, the outsourcing of this complex task can create both cost and time efficiency for your business and its staff. Empowered with these insights, you’ll be far better placed to guarantee your supply chain, from raw materials through to your customers – enhancing your reputation and steadying, or increasing, your revenue stream.

Making the right procurement decisions for your business can mean the difference in the ultimate viability of your business. With CreditorWatch’s Financial Risk Assessments, you can arm yourself with the information necessary to help ensure those decisions are the correct ones.

Speak to our team today to learn about how we can help protect and grow your business.

Senior Consultant
Annie joined CreditorWatch in July 2019. She has more than 7 years’ experience in procurement, credit management, and empowering businesses to make smart decisions through unique, data driven, insights.. She is passionate about assisting businesses mitigate debtor and supplier financial related risks through CreditorWatch’s reporting and monitoring capabilities. With a client base across all industries, she specialises in Construction, Manufacturing, and Real Estate industries.
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