But where's credit risk world for the industrial enterprises going? Our experience at European level
In this last month, I and Mattia have been many times contacted by big European companies to see how to improve their credit risk models both in its most classic (customers) and in the less traditional vision (financial analysis of suppliers). The aim is always one: to improve the efficiency and quality of the credit managers’ work as much as possible (a topic discussed in earlier issues here).
So we can briefly show where , in our opinion, and of course with a comprehensive vision, that internal assessment of credit risk within large companies are being carried to an international level with customers and suppliers worldwide.
1) Quality of commercial credit limit evaluation:
It may seem a truism, but in fact the first and fundamental point is that everyone wants the highest possible quality in the evaluation of commercial credit limit: the values must be accurate and adhering to the true the economic and financial reality of the examined subject . Nobody wants to have anything to do with credit limit models which do not take into account all real aspects of the subject; there is definitely a greater knowledge of the modeling of the credit line by the credit manager , which means that now the quality of the evaluations is more important than who actually make them! The big names are not enough , you need the results. And this definitely brings greater interactions with credit manager: working together to find the best possible solution!
2) Quality in the assessment of credit rating:
A similar discussion to the commercial line of credit can be certainly done for the attention of the credit manager in the accuracy of the rating model . Hence, quite rightly using benchmarks on real cases and also in this case discussion of the results and reasons for the assignments.
3) Quality of the information:
A fundamental element : the information on which these judgments are based, is that of credit rating agencies, must be the best possible, well documented and official. We note a decrease in the search for the “not official” information, since sometimes they cannot be proved and therefore in case of disputes, they can lead to problems which are not indifferent. Obviously the speed in incorporating the changes is increasingly important.
All companies want assessment systems integrated with their IT systems : the entire process of assessment must always be documented, standardized and made available at any time. Personal changes by analysts can and should still exist but they must always be documented to understand their motivations. The credit manager must always have them under control in a simple, intuitive, yet accurate credit conditions.
The last, but perhaps the most important point and the one that is mostly changing the world of the assessment of credit risk. Given the increasing demand for quality, there is virtually no room for standard models. More and more there is a request for including the information which are critical to the credit manager in the assessments, most of the time this information is internal to companies and therefore accessible only to a minority of people. So the evaluation company on one hand must always be able to a part of changing their business models following the specific requirements of the customer , on the other hand must be able to realize the software for the evaluation : therefore not only finance, also IT!
The result of our experiences can therefore be summed up with constantly increasing demand for quality assessments that moves the market from simple information search model to a higher level of companies that are able to better interpret financial data (and not only) to get a higher and higher quality. Definitely an added bonus is that the evaluating companies are able to independently carry out the software.
In our opinion, the thrust of credit manager is in the right direction.