50% of European SMEs risk bankruptcy from COVID-19. How is your view of financial risk in your supply chain?

Over 50% of Europe’s small and medium sized companies report facing bankruptcy in the next year if revenues don’t pick up, according to McKinsey. The consultancy firm surveyed more than 2,200 SMEs in Europe’s five largest economies. Some are in a more precarious position than others: one in five companies in Italy and France anticipate filing for insolvency within six months. Businesses reported that the primary cause of their struggles is COVID-19. This is further evidence that the pandemic is raising the financial risks facing companies.

Bankruptcy has a devastating impact on the employees of these companies, and it has knock-on effects on third parties. For example, a company might rely on a third party to deliver orders to customers. If that order is not delivered, this will cost the company revenue and perhaps put these customers off using them again. It could also threaten other contracts and third-party relationships. Given the complex and interconnected nature of global supply chains, bankruptcies on the scale suggested by McKinsey’s survey pose a financial risk to companies in every jurisdiction and sector. It is therefore critical that companies capture a clear view of the financial health of its third parties.

How should companies manage financial risk?

An essential aspect of many modern businesses is the global supply chain. But when you strike up a relationship with supplier, you expose yourself to financial risk. The same is true of other third-party relationships, whether it is with a business partner or agents acting on your company’s behalf.

The most important step for companies looking to mitigate bribery and corruption risk is to understand the level of financial risk posed by business partners, suppliers and other third parties. There are two main ways to do this: access to relevant data to assess the level and types of third-party risk they face and use of technology to filter the most useful insights from high volumes of that data.

Organisations can enhance their risk management workflows with data and technologies to suit their specific risk considerations. Download our data and technology showcase to look at three key dimensions of financial risk:

1. Financial stability - If a third party is in poor financial health, it could disrupt supply chains, threaten other contracts and relationships, or even signal misconduct. McKinsey’s survey suggests that this risk has been raised during COVID-19.
2. Anti-bribery and corruption regulations - Regulators in different countries are working together on cross-border investigations, leading to a rise in enforcement actions. You are at risk if your third parties do not comply with evolving legislation.
3. Reputation - Whether a third party has a history of bankruptcy or it has engaged in unethical conduct, it can negatively impact your organisation’s reputation, not to mention that financial instability or misconduct may be more likely in the future.

How can Nexis Solutions help?

Our flexible technologies and vast content universe - alone or in combination - allow organisations to implement effective due diligence and third -party monitoring with customisable, off-the-shelf solutions or by delivering relevant datasets into in-house risk management applications:

• Nexis Diligence™ helps to conduct risk-aligned due diligence on business partners, suppliers or other third parties across a world-leading content set spanning news, company, regulatory and legal sources and use the Report Builder to maintain a clear audit trail.
• Nexis® Entity Insight helps to establish on-going monitoring across critical third parties and get an at-a-glance view of emerging risk from a convenient dashboard that lets you drill down to the data behind the visualisations.
• Nexis® Data as a Service lets companies use flexible APIs to tap into our unrivalled content universe to enhance your risk management workflow and drive meaningful insights.

Next Steps:

1. Check out our Financial Risk Data & Technology Showcase.
2. Learn how Nexis Diligence™, Nexis® Entity Insight and Nexis® Data as a Service can help you to address financial risk.
3. Share this blog with your colleagues and connections to keep the conversation going.