As you review your vendors financial health, here are 5 tips to an accurate vendor financial performance assessment.
5 Vendor Financial Performance Assessment Tips
Follow these five tips:
1. Is your vendor making money?
This is the biggest driver of financial performance - if your vendor is not making any money then how will they have the resources to not only improve their product, but also keep staffing and service levels high to deliver good customer service?
2. The net worth can mislead you.
This is an important area; however, in some large publicly traded companies it could be declining as they’re buying back their treasury shares. So, remember, it may not actually be a negative reflection on their performance! For that reason, do your research.
3. Be sure to review cash. Especially the current ratio
Does your vendor show that there is sufficient cash to sustain operations at the current levels?
4. Look at their debt-to-worth
Look at how outside rating agencies rated your vendor's debt obligations. Be sure to note if the ratings have either been upgraded or downgraded in the past 12 months. Use third party reviews like Moody’s and Standard and Poors together with the Altman Z-Score.
5. Are they involved in any legal proceedings or lawsuits?
If so, you’ll want to understand the estimate of the anticipated settlement charges and when to expect that to happen.
Reviewing a vendor’s financial performance can lead to discovering more than just what is apparent by the numbers. It helps you determine if there are underlying issues at the vendor that you need to be concerned about. If there’s pending litigation or lawsuits, a ton of changes in executive leadership or even slow pay problems, identifying poor financials can give you the forewarning that it’s time to investigate further.
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