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How to pick the right business partners & customers through financial performance analysis?

Why should you monitor the financial performance of your business partners and customers?

All this is taking place against a background of unprecedented global turbulence created by the pandemic. The Covid-19 crisis has shown how interconnected our business activities are and how quickly problems can spread between partners and customers.

Financial monitoring of your own performance and that of your customers and partners will mitigate risks or distractions to your business. Dynamic monitoring is a necessary tool to identify weak links in your value chain.

As Nicolas Marchenoir, Head of Commercial Underwriting at Allianz Trade France says: “You can only be as good as your counterparties. If one or more has difficulty paying or supplying, so will you.” That is true for both partners and customers.

Which financial KPIs do you need to use to monitor the financial performance of your business partners and customers?

Here are some key financial KPIs you should follow on a regular basis to monitor the financial performance of your business partners and customers. Basically, the reference KPI is EBITDA. It captures how the basic business is doing, without considering non-recurring items, erratic taxes, or debt loads.

In addition to EBITDA, look at:

  • Revenue/sales
    It should be positive but in case of very fast growth, keep in mind that it must be funded.
  • Net profit margin
    The higher, the better.
  • Leverage (Net debt-to-EBITDA)
    It should typically be below 3 or 4 but can also differ depending on the sector.
  • Liquidity
    It includes cash and non-withdrawn confirmed credit lines.
  • Debt-to-equity ratios
    It should be analysed in the long term.
  • Working Capital Requirement (WCR)
    It is calculated as the difference between short-term assets and short-term liabilities.
Then, you should compare your findings to the industry average, and you will have a picture of your partner’s financial viability.
monitoring financial performance

Do you want more tips & tricks to choose the right business partners and customers?

Do you want to know more about how to better analyse the financial performance of your business partners and customers? Discover our whitepaper about how to boost your financial performance analysis full of useful advice and practical tips.

A risk expert to monitor the financial performance of your business partners and customers

Financial analysis today can be complicated. It takes more than numbers! A risk expert who understands not just the numbers, but also your business, your sector, and the economy can help you see this wider view and can create a sound basis for decisions.

A trade credit insurance includes such risk expertise and protects your business against the risks of defaults of payment and insolvencies of your customers. You can look towards a prosperous future:

Information 

We monitor the financial health of your customers

Collection

We take care of the collection of your unpaid invoices

Compensation

And we compensate you when your customers don’t pay

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