What does a credit analyst really do?

I suppose I’m quite like an investigative journalist in many ways, doing research, questioning sources, but mining even deeper into a story – and wherever I can, getting there before the journos do. But unlike a journalist, I’m not just looking for the doom and gloom – a lot of what I do is positive, hunting untapped opportunities for clients to make money. It’s not just about cutting losses.

I get into the office around 8. First job is always to make a coffee then dive headlong into what I call my “risk roundup”: a big part of my role is analysing sentiment from a vast variety of sources, public domain stuff and much harder to access insider information.

Hunter gatherer

I start with a read around all the published sources, to find out what’s been going on overnight. I’m a subscriber to countless news resources and research providers, too many to mention. Anything that sets an alarm bell ringing, that looks like an opportunity or a threat to one of my clients, I make a note to investigate more.

If it looks like an opportunity or a threat to one of our clients, I investigate

Later on in the day, I’ll be writing reports on specific sectors or companies, so I file as I go in various places in my digital library. Being really organised is half the battle when it comes to staying on top of reams of information.

Then I start disseminating information to strategic clients. I work with a big energy company and there’s a few things going on in their supply chain that will definitely be of great interest to them. So I fire a couple of emails off straightaway.  

Credit referee

As I mine through information for the report, the phone starts ringing. 

Our client, Company A (a large construction materials supplier) is in the process of renegotiating credit terms with one of their clients, Company B, who’ve been late paying and their published financial position offers zero comfort. They’ve had their terms reduced and launched an appeal against the decision. I’m being brought in to arbitrate.

Company B send over their up-to-date management accounts, made up to the very day.

It’s good to have an objective, unbiased view in these situations

Once someone has decided trading might be risky, they’ll look for reasons not to trade. It’s natural, a cognitive bias to look for information that supports what you’ve already decided. Basic psychology, everybody does it.

But as a seasoned analyst, I like to think I’m above that (at work anyway!)– I can judge evidence impartially, a skill I’ve learned over the years.

In this case, Company B looks good. There’s a tendency to look at a company for what it was, rather than what it’s about to be. Without saying too much, Company B invested heavily and had a few cash flow issues as a result. I believe they’re about to go through a growth spurt, which could be a good thing for our client (although not always) But my research here tells me Company B is well managed and well thought of throughout their supply chain.

I recommend keeping trading with them, albeit with an element of vigilance.

Supply chain stress tester

Today I’m working on a draft of a strategic buyer report in the construction sector.

Essentially, it’s good to know where you stand in a supply chain – some companies can be so reliant on certain relationships that if they lost one contract it could skittle the entire supply chain.  By analysing the bigger picture around the concentration of revenue flows, I help companies avoid putting too many eggs in the wrong basket. I can see risks they generally can’t.   

I produce all manner of reports, at regional, sector and company level…but’s that another story for another day. 

Know where you stand in a supply chain – if some companies lost one contract it could skittle the entire supply chain

Hype and bluster detective

Twitter and LinkedIn are always useful channels, it’s definitely part of the job to investigate whether rumours that pop on social media can be substantiated. Today there’s a rumbling of tough times for a certain company I’m keeping an eye on.

You’d be surprised how many stories start as something seemingly innocuous in a tweet that turns out to be an important lead when you know where to look for the next layer of detail. Often you can get an indication from a source close to the actual risk, if you know how to ask.

Everyone is very careful not to divulge any confidential details, for example, they will not be able to say A B C but if you ask X Y Z, you can get an indication. There’s information that can be used, without actually passing any on. That is, information can inform a position and from assessing others’ positions I can form my own. So I can advise an action to take, without hearing or divulging any confidential data.   

I’ve been doing this a long time, so there are plenty of avenues to explore. I make a few calls. In this case, it turns out that the company is pretty solid. 

But I’ve seen it go the other way, when a tweet by a random blogger was the first anyone knew of an impending insolvency.

Commercial opportunist

I’m always on the lookout for areas that are getting a lot of investment, growing and outperforming similar opportunities. I can’t stress enough how my day isn’t all about defaults and failures.

I’m constantly on the lookout for ways clients can make money – and today I’ve spotted a good opportunity for another construction company I’m working with.

I can’t stress enough how my day isn’t all defaults and failures. I’m constantly on the lookout for ways to help clients make money

There’s a tender just been signed off, a whole supply chain they can link into.  

I crunch some numbers and put together a short briefing paper explaining the size/scope of the opportunity, including a selection of leads who’re financially solid (a lot of this data comes from recent filings in my archives, but I do a quick check over some numbers and up-to-date stock market information to make sure things are as good as they seem).

Brexit isn’t all doom and gloom – not for everyone at least

Ever since Brexit I often get calls with clients and potential prospects asking about the liquidity of other companies, how they are affected by Brexit.  If they’ve got a healthy export operation, let’s face it they’re potentially doing great.

It’s definitely part of my job to keep people nice and relaxed about doing business, both at home and abroad. Checking out the background of clients, getting to grips with how they’re weathering various economic challenges all over the world – all part of the service.

Coaching

I’m also working on a bespoke training session for a client: they want to know how to reduce their risk, so they’ve drafted me in to teach them how an underwriter thinks. I’m giving guidance, top tips, mantras… I try and make it memorable so it actually sticks!

I’m also teaching them how to read between the lines in end of year reports – the financials of big companies can be quite hard to decipher unless you’re doing it all the time.

When you know you’re going to get paid for the work, you can broaden your horizons

Growth seeker

I’m not just looking for new business for our clients, I also look for new clients.

Towards the end of the day, I’m looking into companies that don’t have trade credit insurance and could really benefit from the growth opportunities that come from knowing you’re protected. You can be a bit more adventurous when you are insured. When you know you’re going to get paid for the work, you can broaden your horizons.  

Roberto Simone is a Credit Risk Analyst with Howden Trade Credit Services

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