2021 and Beyond: Financial Viability Trends for Third-Party Risk Management

Financial Viability Third-Party Risk Management

Experts from ProcessUnity and RapidRatings recently got together to discuss why world-class third-party risk management programs are leveraging financial health ratings for onboarding, due diligence and continuous monitoring. You’ll hear in a conversation with Amanda Giroux, Director of Strategic Alliances at ProcessUnity and Eric Evans, Managing Director, Business Development at RapidRatings shared their thoughts on why financial viability is becoming increasingly important for operational resilience  

This is a condensed version of the original podcast. To access the full podcast and learn more about financial viability, click here. 

Amanda: Events of the past few years prove that financial viability and supply chain risk are deeply linked. I’d like to start by looking at the financial viability trends that are forecasted for the next 12 months and beyond.  

Eric: Absolutely. A lot of the recent events you referenced relate to supply chain issues, like ESG or cybersecurity. The common theme is that financial health is foundational to the resilience of the supply chain. Companies really need to be financially resilient to bounce back from a cyber breach or some sustainability issues. From our perspective at RapidRatings, we want to ensure that companies are financially sound enough to handle disruptions.   

One of the first things we’ve noticed coming out of the pandemic is that private companies have had easy access to capital or cash infusions, either by lines of credit extended to them, adjusted payment terms or an investment. Their financial rating in the short term may look a little better, but over the long haul, they’re extending out their liabilities and accumulating debt. It’s essential to look under the hood and keep looking under the hood of your third parties to monitor their financial health. Not every vendor will get a bright, shining headline when something goes wrong with their financial health, so you really need to continuously monitor the financial health of your vendors.  

Amanda: Sure, and we always say “trust, but verify.” We have many customers utilizing our Vendor Risk Management Platform and bringing in RapidRatings Financial Health Ratings to ensure that supplier assessments are accurate from a financial standpoint. Tell us a bit more about RapidRatings and what makes these ratings unique.  

Eric: RapidRatings is a SaaS-based algorithm. We assess and rate public and private companies globally on their financial health using their financial statements as inputs. This process is opposed to a company that looks backward at financial health using credit reports.   

We’re predictive using payment history, so we show default risk and probability to follow over the next 12 months in our financial health rating. Then we also have a core health score that looks at the medium-term or longer-term viability of the organization.   

Another key thing we do at RapidRatings is source the private company financials direct from that supplier, no matter where they are in the world. We have a multilingual team that has helped us gather financial statements from over 150 countries through people, processes and technology. 

Amanda: We get a lot of questions from our customers on the private company data you mentioned. Our customers come to us and say this information isn’t anything they can find anywhere else. So essentially, you have a whole team sourcing this information when a request comes in from a customer? 

Eric: Exactly, we have a team outside of Boston. Through people process technology, they’re constantly reaching out to a private company and speaking the native language if they need to. Our team communicates with the private company controller or CFO to explain the programs and why it’s good practice. They explain to the supplier the benefits of being transparent and complying with the vetting.   

There’s an entire industry trend to support the use of ratings as well. Companies want to get on board and be rated so that they can put their best foot forward when a supplier searches them. 

Amanda: How do you see your clients use these analytics within their third-party risk management programs?  

Eric: Good point. I’m getting brought into many conversations around the API connector that helps embed our ratings into clients’ TPRM platforms like ProcessUnity Vendor Risk Management. Customers leverage the API connector to integrate the ratings into their workflows, review the analytics and mitigate vendor risk.  

Clients will establish a portfolio or multiple portfolios depending on how big the vendor base is. Relationship managers can analyze the data in these portfolios. RapidRatings has a heat map view within our portfolios that enables them to do pure benchmarking and generate reports. In ProcessUnity, you can also look at the executive summary report to drill down into a specific vendor or supplier.   

ProcessUnity also uses color-coding to score vendors. It’s very intuitive and straightforward: 55 categories of risk by different colors and five different bands of scores in ranges of 20. The higher the risk, the higher the scores and the lower the risk, the lower the scores.   

Amanda: Sure. We did a lot of work a while back to add the prebuilt workflows and dashboards specific to the RapidRatings data within ProcessUnity. We also see many people utilizing RapidRatings during vendor onboarding to complete an RFP or evaluate multiple suppliers. Is that typically something you see clients use the ratings for as well?  

Eric: Yes. If there’s a long time period between sourcing and onboarding, we suggest rerunning the rating if it’s been a few months. If the client is doing an artifact process, then it’s like six months to a year later, and they’re going to onboard them as a vendor, then they should rerun it, especially with everything going on with the pandemic. Financials are constantly fluctuating, but the way that ProcessUnity automates out-of-the-box workflows makes it very easy for a program to get up and running to analyze this data quickly.  

ProcessUnity and RapidRatings continue to discuss how organizations leveraged RapidRatings’ Financial Health Network during the pandemic, how ratings will be innovated in 2022 and more. Click here to listen to the full interview.   

How ProcessUnity Vendor Financial Intelligence with RapidRatings Can Help You Establish Visibility into Third-Party Financial Health

ProcessUnity Vendor Financial Intelligence (VFI) with RapidRatings seamlessly incorporates RapidRatings’ financial health data into ProcessUnity Vendor Risk Management to provide objective financial health information in your TPRM process. During vendor onboarding and throughout the vendor relationship, RapidRatings financial health information combined with ProcessUnity’s assessment engine provides continuous insight into the validity of vendors’ financial posture and overall risk to the business. Schedule a demo today to learn more about how you can improve your TPRM program with financial health ratings.