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Credit Monitoring and Financial Viability are two practices to assess the financial health and stability of counterparties. Learn the key differences, when and how to use each and why each is important.
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In the construction industry, managing financial risks is crucial to the success of any project. Two terms that often come up in this context are credit monitoring and financial viability. While they might seem similar, they refer to different aspects of assessing a company's financial health. Let's break down the key differences to help you make informed decisions and keep your projects on track.
Credit monitoring involves keeping an eye on a company's credit history and current credit status to assess its creditworthiness.
Example Scenario:
Imagine you're a supplier considering offering credit terms to a new client. You'd use credit monitoring to check if they have a history of late payments or defaults, helping you decide whether to extend credit and under what terms.
Financial viability assesses a company's overall financial health and its ability to sustain operations over the long term.
Example Scenario:
Before partnering with a subcontractor for a large project, you'd assess their financial viability to ensure they have the resources and stability to complete the work without running into financial difficulties.
Credit Monitoring looks at credit-related information to assess short-term credit risk.
Financial Viability provides a comprehensive view of a company's overall financial health and long-term sustainability.
Credit Monitoring is used by lenders and suppliers to make decisions about extending credit.
Financial Viability is used by investors, partners, and project managers to evaluate potential business relationships and investments.
Credit Monitoring focuses on current and past credit behavior.
Financial Viability considers current financial status and future projections.
Credit Monitoring relies on external credit reports and credit scores.
Financial Viability uses internal financial documents and may include market analysis.
Credit Monitoring assesses the risk of defaulting on credit obligations.
Financial Viability evaluates the risk of business failure or inability to sustain operations.
For project success: Relying solely on credit monitoring might overlook deeper financial issues that could affect a subcontractor's ability to complete a project.
Risk mitigation: A company with a good credit score might still be facing profitability or cash flow problems that could jeopardise project timelines and quality.
Informed decision-making: Combining both assessments provides a more complete picture, helping you choose reliable partners and avoid costly disruptions.
Scenario: Hiring a Subcontractor
Credit Monitoring findings:
Financial Viability Assessment findings:
While credit monitoring suggests the subcontractor is trustworthy in terms of repayments, the financial viability assessment raises concerns about their overall financial health and ability to handle your project effectively.
Understanding the key differences between credit monitoring and financial viability is essential for managing financial risks in your projects. By looking beyond credit scores and examining the broader financial picture, you can make more informed decisions, choose reliable partners, and ensure the successful completion of your projects.
For a deeper analysis of your contractor’s financials, Fiable is your go-to premium financial viability solution. We provide financial assessments within 1-2 business days and a range of tools and support for solid risk management.
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