We’re delighted to bring you this guest blog from Shavantha Mallawa, Founder and CEO of CreditSource, one of our key strategic partners. CreditSource assists procurement and tender evaluation teams with their shortlisting and final contract award processes, providing supplier financial capacity and risk assessment advice. In this blog, Shavantha reveals ten financial signals that procurement teams prioritise, why they matter and what you can do to manage them better.
Understanding how evaluation teams assess your financial health is crucial for winning competitive tenders.
Every year, my firm – CreditSource – analyses more than 25,000 companies across 80 industry sectors, principally to provide finance-focused pass/fail recommendations to procurement teams making shortlisting and final contract award decisions.
Did you know that out of all the organisations we are asked to analyse for this purpose, approximately 20% fail our financial capacity assessment? And the remaining 80% range between barely adequate and financially healthy?
Given our experience, we know the key financial metrics and behaviours that procurement teams prioritise when vetting potential suppliers.
This article shares strategies for building a financially stable business and effectively signalling your financial position to evaluation teams. Understanding and managing these signals will boost your tendering win rate and set your business on a path to sustainable growth.
Why financial assessments matter
Although the tendering process can feel arduous, procurement teams have legitimate reasons for scrutinising financial health. They’re seeking supply inputs from partners who demonstrate operational reliability and resilience through financial stability. This isn’t an adversarial process. When you win a tender it’s because you’ve proven yourself to be a safe, sustainable choice – someone the buyer trusts and wants in their supplier ecosystem.
Communicate your competence – ten financial signals
The best way to appear financially fit is to be financially fit. However, you must also articulate this persuasively. The following explains:
- the 10 financial signals procurement teams prioritise
- why each is important to them
- some practical recommendations on how to present your company’s finances more effectively.
1. Profitability Metrics
Profitability indicates operational efficiency. Strong profits drive continuity, enabling investment in growth areas like talent, technology and innovation. Losses indicate distress, with signs like difficulty paying debts, taxes and maintaining quality.
Practical Recommendations:
- Short-term — Provide multi-year profitability trends showing improving metrics. Explain any loss periods.
- Long-term — Review costs line by line to optimise spending. Consider downsizing underperforming areas to boost profits.
2. Solid Balance Sheet
A strong asset-to-liability ratio indicates financial stability, and the ability to withstand disruptions while meeting obligations. Your balance sheet should reveal careful management of debt, asset liquidity and cash positions.
Practical Recommendations:
- Short-term — Provide clarity by calculating and highlighting key ratios, like current ratio and debt-to-equity.
- Long-term — Improve ratios by boosting profits, paying down debts and investing surplus cash into productive assets.
3. Robust Cash Flow Management
Cash flow demonstrates your ability to sustain operations and invest in growth. While profits matter, cash flow is the lifeblood — mismanaging it can cripple even a profitable business.
Practical Recommendations:
- Short-term — Prepare multi-year cash flow statements and explain any negative periods. Highlight working capital practices.
- Long-term — Optimise inventory management, accelerate receivables collection, and renegotiate supplier payment terms to improve cash flow.
4. Risk Mitigation - Diversification
Revenue diversification across markets, products/services and clients reduces your risk exposure. It signals strategic risk management amid volatility.
Practical Recommendations:
- Short-term — Provide revenue breakdowns highlighting your diversification.
- Long-term — Broaden your base byinvesting in new products, channels or geographic markets.
5. Risk Mitigation - Contingency Planning
Well-developed contingency plans demonstrate preparedness for disruptions, building confidence in your resilience and risk management abilities.
Practical Recommendations:
- Short-term — Document your business continuity, disaster recovery and risk mitigation plans.
- Long-term — Regularly review, test and update plans based on new risk factors.
6. Strategic Debt Usage
When used wisely, strategic debt can fund growth initiatives. Procurement teams assess your debt levels, terms and ability to service debt obligations.
Practical Recommendations:
- Short-term — Explain your debt strategy, what’s being funded, repayment plans and provide affordability metrics.
- Long-term — Optimise capital structure by refinancing high-cost debts and adopting pay-as-you-go financing models.
7. Transparent, Timely Reporting
Comprehensive, transparent financial reporting demonstrates accountability. The ability to deliver this reporting quickly signals preparedness and instils confidence.
Practical Recommendations:
- Short-term — Establish efficient reporting processes to rapidly produce customised financial reports and data.
- Long-term — Invest in accounting/reporting systems, automation and skilled finance teams.
8. Compliance and Ethics
Strong compliance, ethics and governance practices underscore your trustworthiness and commitment to mitigating risks like fraud, bribery and modern slavery.
Practical Recommendations:
- Short-term — Provide certifications, internal control audits and documentation of your compliance programs.
- Long-term — Regularly review and enhance programs to meet evolving regulatory requirements.
9. Invest in Improvement
Investing in growth areas like technology, systems, R&D and market expansion demonstrates your commitment to continuous improvement and sustainability.
Practical Recommendations:
- Short-term — Highlight major investments made and future investment plans.
- Long-term — Establish a long-term roadmap for investment, ideally funded by operating cash flows.
10. Embrace E.S.G.
Adopting sound environmental, sustainability and governance principles aligns you with clients prioritising corporate responsibility and ethical practices.
Practical Recommendations:
- Short-term — Be prepared to report on your E.S.G. programs, metrics and future goals.
- Long-term — Embed E.S.G. into your core business strategy, operations and product/service offerings.
Plan for the long term
Mastering these ten financial signals will better prepare you to navigate the tender evaluation process. But such mastery will also give you much more than that. It’s about building a financially stable, risk-resilient business positioned for sustainable growth and success.
Procurement teams recognise this – so it pays to make your financial strength and risk mitigation framework a very real and evidence-based competitive advantage.
Together in partnership, CreditSource and BidWrite have developed an opportunity for your organisation to understand the metrics buyers use to interpret your financial capacity, learn how you stack up, compare your organisation to competitors and industry benchmarks, and identify improvements you can make.
