Picture this: as a CFO of a large manufacturing company, you wake up to the news that one of your major suppliers has declared bankruptcy. The ripple effect of this sudden event threatens to disrupt your entire supply chain, leading to potential revenue losses amounting to millions. You and your company have been completely blindsided by this development at the supplier’s end and are now staring at a huge loss.

Now, imagine if you and your team were pre-warned that the supplier was bleeding. You would have selected an alternate supplier in advance; this would have helped protect your company.

The first scenario where the CFO is blindsided would have been more likely a decade ago, but with the advent of digital risk management platforms that aggregate data and assess credit, supplier and compliance risk on a near-real-time basis, the second scenario is more common.

As a CFO, navigating the complex world of risk management is part of your everyday journey. The tasks involved in managing B2B credit risk, supplier risk, and compliance risk have generally been perceived as being onerous but tech-based risk management platforms are here to help manage these challenges. According to a Deloitte survey in 2023, about 78% of Indian CFOs prioritise technology automation to minimise risks. As CFOs juggle a multitude of responsibilities, technology stands out as the key to unlocking efficiency and strategic oversight.

The Journey from Tiresome B2B Risk Management Processes to Near Real-Time Risk Assessment

Do you recall the days when assessing the counterparty risk of an entity was an arduous, manual process, heavily reliant on off-the-shelf credit reports and financial statements from the previous financial year’s filings? The drawback was that this information was often outdated by the time it reached your desk, and the risk assessment processes were not scalable, posing significant challenges for a growing organisation.

Today, risk management platforms have revolutionized this landscape. These platforms analyse massive datasets at lightning speed, deploying analytics and credit scoring tools. The deployment of machine learning helps significantly improve the accuracy of the credit scoring models. These risk management platforms offer a comprehensive view of credit risk, enabling CFOs to make informed, timely decisions that are imperative in a fast-paced business environment, ultimately protecting companies from bad debts, defaults, and potential disruptions in their supply chain.

Transforming Credit Risk Assessment

The credit risk of counterparties can be a significant hurdle to a company’s financial stability and growth. However, platforms that offer real-time credit assessments and monitoring are rapidly overcoming these challenges. By harnessing the power of data, analytics, technology, and machine learning, these platforms predict potential defaults, provide comprehensive credit risk assessments, and monitor risk on an ongoing basis. Here’s how it is possible for companies to leverage these platforms effectively:

• Near-real-time Credit Assessments: Risk management platforms provide near-real-time credit assessments, enabling you to identify potential defaulters promptly and take necessary preventive measures.
• Predictive Analytics: By harnessing the power of AI and machine learning, these platforms predict the probability of credit default by an entity. This empowers CFOs and risk managers to take confident decisions well in advance of an adverse event.
• Automated Risk Scoring: The Risk Management Platforms provide a Risk Score to a company’s counterparties including customers, distributors, dealers, suppliers or vendors. These Risk Scores assist CFOs in promptly identifying high, medium and low-risk counterparties.
• Credit Limit Setting: Based on the Risk Scores automatically assigned to counterparties, the platform also recommends credit limits for them. This helps in removing arbitrariness and bias in the credit limit-setting process.
• Portfolio Risk Management: Risk management platforms present a holistic view of the risk of your entire counterparty portfolio. It is possible to look at the credit risk of your organisation at both a portfolio and granular (individual counterparty) level. The portfolio risk of counterparties can be sliced by region, customer type, industry/ sector, legal constitution, and in numerous other ways, providing users with a more insightful view of risk. Risk Managers are therefore able to focus on those parts of their portfolio where the credit risk is higher.
• Risk Monitoring: A one-time assessment of counterparty risk is not sufficient. The risk needs to be monitored on a continuous basis. A good risk management platform like the Rubix Early Warning System (EWS) aggregates statutory filings, litigation data, and external credit ratings continually. Based on the data collected, the Risk Management Platforms detect the changing credit risk profile of the counterparty and automatically revise their Risk Score upwards or downwards. A drop in the Risk Score assigned by the platform alerts the CFO that the risk profile of the counterparty is deteriorating. The CFO is then able to take urgent steps to reduce the credit risk exposure to the relevant counterparty.
• Automation of Processes: Routine tasks such as data collation and MIS generation are automated by risk management platforms, enabling you to focus primarily on decision-making.

Addressing Supplier Risk

Since the turn of the decade, global disruptions have brought supplier risk into the spotlight. In 2020, 93% of supply chain leaders in a McKinsey survey said they were focusing on making their supply chains more resilient. Three years later, resilience remained the top concern in 2023, with companies either diversifying or localising their supply networks. Though some measures were taken to mitigate supplier risk, the report says, “Responsibility for risk management remains fragmented”. The good news is that modern risk management platforms provide centralised repositories of risk-related data, making it easier for all stakeholders to access and understand supplier risks, eliminating silos and ensuring that everyone is working with the same information. Besides, through a shared platform, everyone can contribute to and collaborate on supplier risk management efforts.

Ensuring Compliance

In an increasingly regulated business environment, ensuring compliance is a formidable task. The India Risk Report 2023-24 by ICICI Lombard and the Institute of Risk Management (IRM) indicates that Indian companies regard legal and regulatory risk among the top five risks both in the short as well as long term. The survey in the report also concludes that for Indian companies legal and regulatory risks have a high impact on reputation, a medium impact on growth, and some impact on innovation. Therefore, risk management platforms that help CFOs assess the compliance risk of their counterparties play a vital role in ensuring that companies work only with those entities that are statutorily compliant. Risk Management platforms aggregate statutory filings from sources such as GST, Provident Fund (PF), Ministry of Corporate Affairs (MCA), eCourts, Pollution Control Boards etc. These platforms also identify counterparties that pose a risk from the Anti-Money Laundering regulations perspective or those that are associated with Politically Exposed Persons (PEPs). Risk Scoring algorithms in the platform automatically reduce the risk scores of non-compliant counterparties, thus alerting CFOs about their higher risk levels.

Conclusion

In this world of escalating risks, you as a CFO need smart and strategic solutions. Risk Management platforms such as the Rubix Automated Risk Management & Monitoring System (Rubix ARMS) and Rubix Early Warning System (Rubix EWS) automate much of the data collection, analysis, and risk-scoring process, allowing you to rapidly adapt your exposure based on the changing risk profile of your counterparties. These platforms offer a suite of integrated solutions designed to assess, monitor, and manage credit, supplier, and compliance risk across the B2B universe. Corporates, banks, credit insurers, fintechs, and SMEs are all increasingly turning to these platforms to protect themselves in a volatile business environment. Embracing risk management platforms is not just a defensive investment; it is an investment in building a future-ready and resilient business.

To know more reach out to us at info@rubixds.com or call us at +91-22-4974 4274.