Current Factors Affecting Supplier Risk
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The initial signs of tightening credit are starting to panic markets and could affect the finances of your key suppliers. China’s short term interest rates recently spiked to record levels while new banking regulations in Europe will limit the availability of credit for companies. Since 2009, most companies have supported their operations with additional borrowing at low interest rates. These rates, and the levels that companies are leveraged, pose a risk if volumes decrease and cheap credit disappears. Depending on the severity and method of default, the impact to your supply chain can range from increased prices to supply interruptions. Cost & Capital Financial Stress Models assess the severity of future volume declines. Most traditional financial stress scores use historical models to predict the likelihood of default, which often miscalculates the risk in the current environment.
To address this problem, Cost and Capital Partners has developed a cash flow model for suppliers based on customer mix, cost structure, debt maturities, revenue projections, and capacity to rationalize cost for 2014, analyzing volume reductions and the impact on actual cash flows.
Please click here for more information on our approach.