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

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 Euler Hermes 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.

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    It includes cash and non-withdrawn confirmed credit lines.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.

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:

monitor financial health

We monitor the financial health of your customers

collection

We take care of the collection of your unpaid invoices

And we compensate you when your customers don’t pay

120 results

Jun 24, 2021 | Non-payment

Pick the right business partners through financial performance analysis?

The Covid-19 crisis has shown how interconnected our business activities are and how quickly problems can spread between partners and customers. Read more.

Jun 22, 2021 | Guarantees

Bouygues Immobilier Belgium Interview

For its “Forest Village” project, Bouygues Immobilier Belgium chose Euler Hermes for its completion bonds. What is the purpose of such guarantees, and what advantages does an insurer like Euler Hermes offer? Read more.

Jun 16, 2021 | Cyber & Fraud

Identity fraud: a threat for business

Fraudsters are becoming more and more organised, and the methods used to commit frauds are becoming more and more sophisticated. Please find below our recommendations to enable you to protect your company.

120 results