The worst small business mistakes are very easy to make.

What You Need to Know About Supply Chain Risk

A strong, reliable supplier network is key to the success of your business, as supply chain problems can cost you time, money, and customers. Understanding the financial strength of your suppliers is critical to fully understanding their ability to consistently meet your needs.

Supplier Financial Problems Cause Supply Chain Risk

A supplier’s financial problems can disrupt your supply chain, resulting in lost revenue, increased expenses, and greater risk for your company. In the most extreme case, a supplier with deep financial problems might abruptly cease operations, but even suppliers with more moderate financial problems can cause problems for your business. For example, a cash strapped supplier might not be able to fill your orders on time due to fewer production runs and reduced inventory levels. Furthermore, your company’s production efficiency and product quality can suffer if a financially troubled vendor is unable to reliably meet your quality specifications.

Incorporating financial risk analysis into the vendor management process will help you protect your business. Identifying supplier financial issues before they turn into major problems will give you time to take steps including building inventory of raw materials and finished goods, identifying alternate vendors, and multi-sourcing critical materials to reduce dependence on one supplier.

Supplier Evaluations Should Include a Financial Assessment

Supplier management starts when you approve a new vendor and continues throughout your relationship. Including a financial assessment as part of the initial vetting process, as well as regularly scheduled reviews, will provide a more complete view of a vendor’s stability and its ability to meet your needs. Conducting additional financial reviews is recommended as a vendor’s financial condition can change rapidly. Proactively identifying supplier financial issues will enable you address them together, before they become major problems. It also will strengthen your relationship. For example, agreeing to pay a deposit when placing an order could be very helpful to a supplier going through a short-term cash crunch.

Make it Easy for Suppliers to Confirm Your Credit

Remember that your suppliers routinely check your company’s creditworthiness as part of their credit risk management processes. To help this process go smoothly, review your report regularly to make sure it is accurate and up to date. Last thing you need is for a delivery you are expecting to be held up because your supplier’s credit department does not have the information it needs to confirm that your credit limit is appropriate.

Your business credit report changes over time to reflect new information, such as credit score changes, updated trade payment history, new public record filings, and address updates. It is important to review your report regularly to make sure it is accurate, and to detect signs of possible fraud or business identity theft that could be detrimental to your credit profile. Consider signing up for a self-monitoring service offered by one of the business credit report companies. These services send you alerts if there are changes to your report and enable you to report or dispute any discrepancies or inaccuracies that you find 24/7.

Credit.net offers streamlined, intuitive and easy to understand business credit reports on millions of public and private companies in North America, and around the world. Contact us to discuss how we can help you achieve your business goals.