How Leading Credit Teams Will Stay Ahead Of Business Bankruptcy in an Election Year
You can't take anything for granted in this election year. Our email inbox is filling up with subject lines like "what a Clinton or a Trump presidency will mean for financial markets", as if anyone can possibly have a clue. Thankfully, it's almost over!
The popular wisdom: Markets don't like uncertainty, and volatility tends to increase in a presidential election year. Markets typically calm down shortly after Election Day, once the markets have had a chance to digest the news. The good news: Vanguard research going back to 1853 shows that stock market returns are virtually identical no matter which party controls the White House.
As credit professionals and risk managers, should we care whether the Republican or Democratic nominee is declared the winner? Business bankruptcy risk is up globally. The best credit teams will use the same strategies they did before the election, to manage those risks.
So here are five ways to reduce credit risk, no matter who wins next week!
Free Up Staff For Higher Value Activities
Today’s credit teams face a wider range of challenges than their pre-financial crisis counterparts. Risk is up, and we are inundated with data. Yet in these economically volatile times, credit teams are often expected to do more with less, to protect their companies from late payment and bad debt.
With lower headcounts and cautiously managed budgets, the pressure is on to add value and deliver results. According to a recent CFO survey, your CFO expects you to use better tools, processes and strategies to deliver insight and focus on higher-value activities.
Leverage Big Data
Businesses have unprecedented access to data that can revolutionize the way they work. But reams of data are a mixed blessing; the challenge still lies in sifting through and extracting what’s relevant. To do this, world-class financial organizations rely on sophisticated, analytics-based, risk management tools.
With the right infrastructure and technology, you can focus on analyzing and applying judgment instead of wasting resources in data gathering. Analytics-based decision-making delivers stronger results and allows for leaner teams. Tapping data efficiently is key to helping credit teams efficiently mitigate credit risk. Great web-based financial risk analysis tools are readily available to help you do this, and don’t have to be expensive.
Go Beyond Spreadsheets
78 percent of CFOs say the ability to apply financial data analysis provides the most strategic value to their organization. But shockingly, 56 percent of all companies still rely on spreadsheets to do so.
While many credit managers still gather public company financials themselves, the truly savvy automate the process of collating and spreading financials in preparation for credit analysis. As this infographic shows, manually spreading financials expends valuable time: a minimum of three hours just to collect and standardize data for one public company. When credit managers automate these labor-intensive tasks, they can spend more time on higher-level credit analysis and decisioning instead.
When efficiency is an imperative, agility is of the essence – and automation, not spreadsheets are the solution. The end result? Credit assessments are more swift and efficient.
Put Predictive Risk Scoring to Work
Building better credit risk processes may seem daunting, but remember you don’t always need to overhaul your processes. Instead, you can supplement your own data-driven scoring process with tried and true industry metrics.
Many leading financial organizations have home-grown credit-scoring models, but the best also utilize a reliable third-party risk score, like the FRISK® score as one of the inputs. By adding a reliable predictive financial risk score into your scoring algorithm, you can target risk more effectively.
Advanced Portfolio Insights
Leading credit teams also take their credit risk management to the next level by utilizing advanced insight about portfolio dollar risk. For instance, Trade Contributors to CreditRiskMonitor can see diagnostic reports that pinpoint and target their highest risk, high value customers.
When it comes to assessing risk, insights about the intersection of credit risk and dollar exposure make all the difference. Take advantage of the analytical firepower contained within your receivables data. Remember, contributing trade reveals deeper insights, with less effort -- just what you need to work smarter not harder.
Bottom Line: Build a data-driven risk management process
No matter who wins this political season, the only way to reduce risk is to work smarter, not harder, and put the power of data to work for you. Building a data-driven process, using the right combination of risk metrics, strategy, and monitoring software, will help you to make better credit decisions and add value.
Read our customer profiles, to learn how leading credit teams use CreditRiskMonitor’s toolkit to detect and manage public company risk, and support their decision-making process. Then, contact us for a personalized risk assessment.
Learn how we can help you make better credit decisions: Get a personalized risk assessment
CreditRiskMonitor is a financial news and analysis service designed to help professionals stay ahead of public company risk quickly, accurately and cost-effectively. More than 35% of the Fortune 1000, plus thousands more worldwide, rely on our commercial credit reporting and predictive risk analytics for assessing the financial stability of over 58,000 global public companies.
At the core of CreditRiskMonitor’s service is its 96% accurate FRISK® score, which is formulated to predict public company bankruptcy risk. One of four key components calculated in the FRISK® score is crowdsourced subscriber activity. This unique system tracks subscribers' patterns of research activity, capturing and aggregating the real-time concerns of what are essentially the key gatekeepers of corporate credit. Other features of CreditRiskMonitor’s service include timely news alerts, the Altman Z” score, agency ratings, financial ratios and trends. CreditRiskMonitor’s network of trade contributors provides more than $135 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.