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Why You Need to Analyze Credit Risk

Need to Analyze Credit Risk

Logic tells us to look at management when a company is consistently underperforming. Hindsight shows that bringing in new leaders may not solve the whole problem. CFOs, CEOs and owners need better access to critical data to make operational decisions.

A study by Ernst & Young found that 62 percent of CFOs believe they contribute to performance measurement, while citing performance measurement as the top area in which they need to increase their focus. EY identified four performance measurement priorities for CFOs and CEOs. Among those, the priority of “balance hindsight with foresight” was number one.

Here’s where access to critical data comes in. In order to balance current performance with long-range planning and forecasting, CFOs and CEOs need to analyze all areas of a company’s performance, including accounts receivable. Unfortunately, many corporate finance leaders don’t see receivables data often enough, nor do they factor it highly in overall value creation. For those who do review it, the data can be weeks or months old.

And yet, the conservation-of-value principle states that true value is only created by improving cash flows (McKinsey). Aligned with core principles of the right owner, right returns and right share prices, improvements in cash flow signal to the market that a company is on the right track.

We know that clean accounts receivables have a dramatic impact on cash flows. Leaders need timely data that identifies credit risks before they become a problem.

World-class organizations are already employing new technology to analyze credit risk, predict and manage the quality of receivables and forecast performance. Their ultimate goal is not just more cash flow, but consequently less reliance on debt financing.

Are you interested in timely data to improve cash flow and reduce your borrowing needs?

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