The Procurement Glossary » Financial Stability Assessment
Financial Stability Assessment
Suppliers & Vendors
Definition
An evaluation of a supplier's financial health to gauge the risk that it fails or cannot meet commitments.
Explanation
Assessing accounts, credit ratings and payment behaviour flags suppliers at risk of distress. For critical suppliers, ongoing monitoring gives early warning so the buyer can act before a failure disrupts supply.
Example
A falling credit score on a sole-source supplier triggers a contingency-sourcing plan.
Related terms
- Supplier Risk — The exposure a buyer faces from a supplier's potential failure — financial, operational, compliance or reputational.
- Due Diligence — The investigation of a supplier's legitimacy, capability, financial health and compliance before engaging it.
- Business Continuity Planning (BCP) — Planning to keep critical operations running, or recover them quickly, when disruption strikes.
- Credit Rating — An assessment of an entity's creditworthiness — its likelihood of meeting financial obligations.
Frequently Asked Questions
What is Financial Stability Assessment?
An evaluation of a supplier's financial health to gauge the risk that it fails or cannot meet commitments. Assessing accounts, credit ratings and payment behaviour flags suppliers at risk of distress. For critical suppliers, ongoing monitoring gives early warning so the buyer can act before a failure disrupts supply.
Can you give an example of Financial Stability Assessment?
A falling credit score on a sole-source supplier triggers a contingency-sourcing plan.
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