Corporate credit risk
Compliance and financial crime
Tax and transfer pricing
Business development and strategy
Corporate finance and M&A
Data management
Supplier risk and procurement
Corporate
Financial institutions
Professional services and the Big 4
Government
Academic
Data
If you work in credit or procurement, I'd put my money on that word being "risk".
Risk assessment
Risk assessment colours everything we do, from where to cross the road on our way to the office in the morning, to whether we should sign that multi-million-dollar deal with a supplier whose raw materials will be at the heart of our manufacturing operation for the next five years.Some of us are risky; some are risk-averse; most would say we're somewhere in between. But wherever we place ourselves on that spectrum, we like to think our decisions are based on sound judgement and careful appraisal of the facts. If you're good at your job, they probably are.
Competitive edge
But what if the facts are absent? Not all of them, but the central ones on which your decisions would usually rest – often those relating to company financials. What then? After all, Bureau van Dijk is in the business of certainty, and it's something we all crave.In the case of big strategic decisions like the raw material supplier example above, there are no workarounds. But when considering the hundreds of smaller decisions you and your colleagues make week in, week out – ones that, not individually, but collectively can determine whether your business is profitable – assessing peripheral facts, if they're well-structured, relevant and contextualised, will give you an edge.
This applies to credit analysts. It applies to procurement specialists. It applies to anyone who needs to assess any of the 200 million companies on Bureau van Dijk's databases.
Let's take a quick analogy.
The balance of probabilities
You're a commissioning editor for a fiction publisher. At short notice you've been called to put forward for review at a meeting one of three manuscripts you've been sent. You haven't read any of them.Two are from unknown authors but the author of the third has already published two critically and commercially successful novels under a respectable imprint, you know her agent, and the genre of her work is on the rise.
Despite knowing nothing about the content of any of the manuscripts, it should be obvious from these related "environmental" factors which book most of us would put forward if we were pushed. Yes, we might be overlooking an undiscovered Hemingway but on the balance of probabilities the "safe bet" will – in most cases – be just that.
Environmental factors in the real world
If, in your real line of work, you'd usually make decisions based on a company's books – its balance sheets, profit and loss accounts, financial ratios, cash-flow statements and other financials – but they're not in the public domain, the situation is surprisingly similar if you know what else to look for.
Whether you work in procurement or supplier risk, or you need to assess the creditworthiness of a potential customer, the big question is: how can you assess a company's financial strength – and therefore the financial risk of doing business with it – if you can't access its financials?
Well, some companies look at past relationships, for example. If the third-party company in question is a supplier, old records should show how quickly they delivered, whether everything was on budget, if there were any disputes along the way and the like. If the third party is a customer, payment history can be useful.
There are plenty of channels to explore and it all adds to the mix.
But they're somewhat piecemeal and don't apply to all companies, not least the ones with whom you have no past dealings.
So how can you enhance your due diligence?
As covered in an earlier blog post, we have a well-established relationship with Italy-based credit rating agency, modeFinance, whose standardising "MORE score" already appears on most of our company records that do have financial information; the new qualitative score is based on modeFinance's research on and use of non-financial information in our databases. These variables include:
- The size and strength of shareholding companies and subsidiaries
- The average MORE score for the sector in which it operates
- Its management and number of directors
- Its experience and structure, such as years in business, number of employees, and capital and legal form
A new white paper we've written goes into more detail on how these innovative and streamlined methods in qualitative analysis – or rather a quantitative analysis based on more qualitative, non-financial factors – can complement your existing processes. It shows how they could potentially add to the reliability of your risk assessments of all companies on Orbis (Bureau van Dijk's global database of private and public companies), not just those with financials.
