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Financial risks that companies face in today's modern landscape

on Tuesday, 01 October 2019. Posted in Financial management, Finance

Andrew Share, Commercial Director from Coface, a world leading credit insurer, talks about the financial risk that companies face in today's modern landscape.

Financial risks that companies face in today's modern landscape

Andrew Share, Commercial Director from Coface, a world leading credit insurer, talks about the financial risk that companies face in today's modern landscape.

Every company to some degree is going to be affected by global trade and what happens in one country, can have, somewhere down the line an impact.  Whether a business is a manufacturer, distributer or supplier they will be in a supply chain and that supply chain may be reliant on a component or service outside of their specific country - and as we all know too well, if one domino falls the whole row collapses.

There are two important factors to consider when managing trade risks - your new relationships, and your existing relationships and you should be looking to monitor both regularly, particularly given the current economic environment.  For example, the escalating trade wars has resulted in some tariffs, which are starting to hurt, certainly on the automotive side. You therefore need to think on what could happen.

If you have a large US tech giant who relies on China for the manufacture of its product, imagine if China closed its doors overnight and stopped production, what would that company's repercussions be? It could be financially devastating. Ultimately, you have a stop of supply, affecting the people in the supply chain, some of which may not be in China.

Take Fukushima as another example. There was a plant there that provided an automotive pigment. This meant that choice of car colour was reduced as a particular pigment was not being produced.

Both of these are examples of how an event (political or economic) can affect the supply chain.

There are so many dimensions at play and at Coface we stay ahead of the game and analyse what is happening at a country level, political level, sectorial level, right down to the regional geographic level and a business itself. We also look at where a company fits into the supply chain.

We are in the business of knowing how individual companies, regions, countries and sectors are performing at any given moment. We have teams of experts tracking companies, analysing economic movements, anticipating political changes and spotting business trends. We then make this data, and our conclusions from it, available to our clients – in the process steering them away from bad risks and guiding them towards where we feel it’s comfortable to tread. It's really about consultative advice and being part of a risk toolkit.

Some companies see their receivables as their greatest asset, but other are more sales driven and less focused. Every company needs to understand that their receivables is what is driving their cash, and cash is absolutely crucial. After all, how do you protect your cash and what would happen if it all went wrong?

If you would like to find out more about credit insurance, then contact Coface.

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