Digitization of companies and anticipation of credit risk

 digitalization of companies

With digitalization, implementing strategies to ensure the development and survival of businesses has become a real headache for entrepreneurs. However, some tools remain effective and suitable for all sectors of activity. So, by what means can a company limit its credit risk while ensuring its expansion on the web? Through this article, learn more about the digitalization of companies and discover reliable methods to anticipate your credit risk.

What is business digitization?

free collaborative messaging

The digitization of companies consists in increasing their use of technology for their development. It therefore assumes that companies use digital tools to achieve their objectives . Digitization allows any company, regardless of its nature, to ensure better management of its databases by dematerializing its data (invoicing, purchase orders, customer files, etc.) . It promotes customer relations while facilitating contact with new prospects.

If digitalization represents an excellent innovation tool for companies, it also increases their productivity since it allows them to operate in new geographical areas (and therefore to access new markets). Indeed, by selling their services online, companies reduce their distance with their customers.

Digitization, however, represents a cost that companies must amortize by using financial services. Financial services are granted by banks, financial markets, investors or financial institutions. An obligation arises from this relationship: the repayment of credit. 

Companies are not immune to any risk having a negative impact on their resources. Thus, it is possible that they find themselves unable to honor their payment commitments. More commonly, the possibility of not repaying a loan is called credit risk. Businesses can determine different risks likely to impact their repayment capacity (and therefore do everything to reduce these risks), however, they cannot know in advance when these risks will arise. Reducing credit risk is a major subject, because the survival of companies depends on it.

Anticipation of credit risk

managing your business

Through a credit transaction, a creditor grants a loan to a debtor. Thus, credit risk is similar to the risk of non-payment of a debt by the debtor. The creditor can nevertheless easily calculate his credit risk using several methods. 

Credit risk assessment by creditors

put in place a PRA Business Recovery Plan

Companies are exposed to bankruptcies or credit defaults, which have a heavy impact on their savings and affect their financial profitability. It is possible to measure credit risk. To this end, tools such as VAR, Scoring or Rating can help you.

The VAR (value at risk) makes it possible to measure the level of threat represented by a credit transaction (in the event of absence of payment of the debt, what will be the amount of the losses?). Scoring represents a system for defining a company's risk profile (through the calculation of a solvency score). The Rating is a form of Scoring, it is based on a financial audit which gives rise to a note which determines the solvency profile of a large company. 

Financial analysis (financial statements) makes it possible to detect imbalances in a company's financial statements in order to anticipate its risks. However, these tools must be complemented by other methods. 

Credit risk can also be increased due to information asymmetry. Indeed, when granting a loan, the debtor may be unaware of certain information about his situation (risk factors). To this end, the requirements of the BASEL law provided in July 1988 for an international solvency ratio called the COOKE ratio. This ratio determines the capital thresholds necessary for taking out a loan (in order to protect the creditor). To protect themselves, the creditor can also use guarantees such as continuous monitoring of the borrower, securitization (reduction of risky assets), written contracts that give legal value to the loan.

In summary, the identification of credit risk needs to be based on quantitative (financial performance) and qualitative (sector of activity, market trends, experience, skills of the company, etc.) criteria. The nature of the credit, the methods of financing are all elements that influence the levels of risk.

Enregistrer un commentaire

Post a Comment (0)

Plus récente Plus ancienne