The State-owned Assets Supervision and Administration Commission (SASAC) issued the document “Comprehensive Risk Management Guidelines for Central Enterprises” as early as 2006, which provides guidance on risk management for large state-owned enterprise groups and gives most enterprises a better understanding of risks and preventive measures.
In the guidance document, SASAC divided the risks faced by enterprises in the current economic situation into five areas, namely market risk, legal risk, financial risk, operational risk and strategic risk. Since capital runs through the whole process of enterprise operation, each of these five risks is inextricably linked to financial risks. Only by starting from the root cause and strengthening the identification and prevention of financial risks can we essentially reduce the probability of occurrence of other kinds of risks.
The financial risk of trading companies is the uncertainty brought by debt operation to business operation, the unreasonable structure of capital sources and resource allocation. Therefore, financial risk control is essentially part of the enterprise’s internal control, and financial risk identification should be a systematic and continuous process of excavation and classification management of events that may generate financial risks.
What are the characteristics of financial risks in trading companies?
Trading companies are enterprises or organizations that mainly use the circulation of goods as a means of profit under the current market economy. Trade companies in the financial risk characteristics and other nature of enterprises have some commonalities, but also their own unique place, the characteristics of the risk from the following two aspects of performance.
(A) subject to market influence
The main mode of operation of trading companies is the circulation of goods, the enterprise itself is to provide channels and services for the circulation of goods, whether the purchase or sale of goods, inseparable from the market, often the changes in the market can make the enterprise into financial crisis, after a long-term investigation and from the experience of some bankrupt trading companies, many enterprises due to the long-term backlog of goods, there is a difficult situation of capital turnover. In order to protect the normal operation of the enterprise, often need to apply for high loans to the bank, the huge pressure of interest payments make the enterprise unable to make ends meet, into a financial crisis and can not be resolved in time, and finally fell into a dead-end cycle led to the bankruptcy of the enterprise. The problem of backlog of goods is how to generate it, on the one hand, the enterprise managers do not have accurate market positioning, the market situation is not deep enough to understand, in the case of inaccurate investigation to increase the amount of goods stored; secondly, the consumer market market fluctuations, the enterprise just invested in the market after a large change, due to the lack of risk management tools, the enterprise will gradually fall into a financial crisis, and ultimately forced to withdraw from the industry competition .
(2) Poor ability to repair after the occurrence of risk
Trading companies belong to the type of fully competitive market, the gross profit of goods is very low, the promotion means is also complex and diverse, the possibility of foreign investment is not large, which causes the trading company is essentially a single way of profit, due to the commodity trade capital flow is very large, once the operation is not careful to trigger the financial risk, the company for the risk occurred due to the lack of other sources of benefit, the ability to repair is very poor. Many trading companies have learned from the past that the lack of effective financial incentives after the occurrence of risk is precisely the reason for their failure or even closure. It can be seen that the financial risk of trading companies is a huge destructive force, the company only from the root of the hair, in order to inhibit the occurrence of risk from the source, to reduce the company’s losses.
Analysis of the causes of financial risks of trading companies
(A) The flow of capital and business flow do not achieve a good match
In trading companies, most of them have certain problems with their marketing models and do not design their marketing plans with scientific and reasonable choices. The mismatch between capital flow and business flow is the primary problem that exists. Some accounts payable are paid and then accounts receivable are not collected up on time, which increases the debt ratio of the enterprise, and the financial risk is easily formed in this case. We take the steel trading enterprises in China as an example to explore. At present, steel trading enterprises in the sale of just now mainly in the form of agents and self-sales, those with large demand for products directly to the steel plant to pick up, while those retail customers are set up through the steel plant to sell on behalf of the point of transaction. Self-employed mode mostly adopts cash transactions, even if the credit mode is used, there is a contract for regular payment, while the agent operation, due to the large total amount of agents, mainly adopts the bank acceptance transaction mode in terms of financial transactions, compared with self-employed goods into cash is less capable, if the enterprise will use a large amount of goods to sell as an agent, it will inevitably lead to cash flow and business flow imbalance, most of the funds in the form of acceptances pressed in the bank Most of the funds in the form of acceptances in the bank can not be taken out, the capital turnover difficulties, and financial risks arise.
(2) External financing is relatively difficult
The author’s trading company belongs to a branch of the group enterprise, in addition to the causes of financial risk with the flow of funds is not reasonable, financing difficulties lead to the exercise of the capital chain is also the main reason for the occurrence of financial risk. At present, the company’s financing channels are limited, the first choice is to apply for a loan from the group company, but the amount is limited and cannot meet the company’s daily business development needs; the second is to apply for a loan from the bank, but due to the special risk of trade enterprises, banks are more scrutinized in terms of loans, the approval process is cumbersome, and banks are more willing to lend more money to manufacturing enterprises rather than trade enterprises. This factor of external financing difficulties leads to the lack of funds for trading enterprises, and the situation of broken capital chain is often issued, causing serious hidden dangers to financial management.
(3) Lack of risk management professionals in enterprises and insufficient implementation
Financial risk is a combination of internal and external factors, external factors we lack effective control means, but if we can strengthen the internal warning and control of risk, the chances of risk is also greatly reduced. Although the author’s company currently has a sound internal risk control system, but in the implementation of poor efforts, analysis of the reasons, mainly in the internal control of the lack of appropriate professional management personnel, many times the risk control are by the financial staff, this practice is not desirable. Although financial personnel have certain accounting work experience and ability, but financial management and risk control are two different things, risk control is a set of market analysis, financial management and internal control and other comprehensive disciplines, only with professional management personnel, risk control can be carried out smoothly, it is because of the lack of professional risk management personnel, which led to the current company in risk management is more It is the lack of professional risk management personnel that leads to the current company’s shallow risk management and poor implementation.
The prevention of financial risks of trading companies
(a) establish a good credit base and broaden financing channels
Financial credit is the most valuable intangible cai property of trading companies, which is conducive to the credit settlement of enterprises, the purchase of raw materials on credit and financing, etc. Good financial credit is the guarantee of smooth corporate financing, and once the enterprise faces financial risks, it can rely on good financial credit to raise capital to resolve the risks.
First of all, the small company should maintain a good credit relationship with the higher group companies as well as the lower companies, the payment of goods should be paid on time, and the accounts receivable should also be collected in time, and the arrears of goods should be solved as quickly as possible.
On the other hand, it can share the company’s operation information to the lending bank under the condition of not violating the law, so that the bank can understand the current situation of the company’s capital management in time, thus gaining the bank’s trust. In addition to loans, the Company should strengthen financing innovation and actively broaden financing channels, which can make full use of social financing and other means, within the scope of the law, to grow the capital chain and lay the foundation for the healthy development of the enterprise.
(2) Strengthen the training of risk control personnel and introduce professional talents
In view of the current situation that the number of risk control professionals in the company is insufficient, it is suggested that the company should strengthen the training of human resources and allocate some funds for regular training of risk control personnel so as to enhance their professional ability and quality.
The company can also consider signing a talent training program with some universities and selecting some of the students from the economics and management majors as training targets, who can enter the company in advance for internship in order to accumulate work experience and be able to quickly integrate into the company’s operation after graduation, so that the recruited risk control personnel with professional knowledge and ability can become the leader of the department and develop a financial risk management system that is suitable for the current situation after fully analyzing the situation. The financial risk control plan suitable for the actual situation of the company, so that the perfect internal control system has a certain degree of operability.
(iii) Focus on strengthening the management of current assets
Current assets are the foundation of a trading company, and only with sufficient current assets can the company grow bigger and bigger. However, due to the small scale of the company, the lack of capital happens frequently. In this current situation, it is more important to strengthen the management of current assets, including bank deposits, inventory and the management of accounts receivable and pre-receivable, etc. The optimal amount of cash held by the company can be determined according to the advanced turnover speed, and the efficiency of cash use can be improved through reasonable use.
As long as the enterprise always maintains a sufficient amount of current assets and keeps a balanced relationship between inventory and assets, financial risks can be effectively suppressed and the probability of risk occurrence will be greatly reduced.