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According to the last instalment of the Study on Credit Risk Management in Spain, supported by Iberinform and Atradius – Credito y Caucion, only 34% of the Spanish companies have their own credit risk committee.
This might seem odd considering the macroeconomic situation in the country and, specially, taking into consideration that in 2021, 58% of the companies participating in this study had such structures in places.
More strikingly, 37% of companies do not use solvency criteria to select clients and, even more shocking, 11% of companies do not have any specific professional in charge of risk analysis.
This brings me to the conclusion that we, as business information providers, are often some sort of outsourced risk analysis structure for most of our clients. Specially M-SMEs (Micro, Small and Medium Enterprises).
There is no single reason for this, and in this article, we I will try to enumerate some of the most relevant in our opinion.
Firstly, there is a disconnection between sales team and finance department within the companies. Even in small companies where “sales” and “finance” are sometimes just two different individuals working in adjacent tables. Sales team worry about meeting their targets and finance worry about money. Ideally, both should be aligned and the old adagio that says that a sale is not a sale until the money is paid up should be front stage.
Additionally, there might be a lack of knowledge not only of structural corporate finance, valuation methods and cost of capital as these concepts might be somehow ethereal. What it is more worrisome is that there is also a big void of knowledge in operative finance. What is the effect that increasing DSOs (day sales outstanding) have on the life expectance of a company? Why must there be a balance?
Third, there is also the element of trust with longstanding clients or with those customers for which these companies are strategic providers. Normally, the big issues arise from longstanding totally (up to that moment) trustworthy clients. Almost no company makes sales on credit for big amounts, specially without guarantees, without a good and extensive track record with a customer. Regarding strategic customers, I would like to share a definition on those given by one of my teachers in Business School: “a strategic customer is the one that you lose money with”.
There are more reasons for the current situation but, for the sake of brevity, I am not going into them.
So, coming back to the title of this short piece, what is the role of business information providers in risk management?
The answer, in short, is that in many cases we have become an outsourced and external risk department for our less sophisticated clients.
Our industry has come a long way from the reports sent by regular post and/or fax to our clients. Nowadays, we provide them with sophisticated, yet easy to use, platforms that power daily business decisions made by the users.
At the end of the day in these companies making a sale/no sale call or facing a possible non-payment Armageddon because this trustworthy strategic client has gone bankrupt is a life-or-death situation
We, as an industry, have been able to turn complex algorithms, business intelligence, machine learning and many other fancy concepts into one simple number, colour or letter that is easy to understand by the less finance savvy users so they can prevent problems before they happen, most of the time.
Source: Iberinform/Kike Fernádez