Supplier financial analysis

The completion of a financial analysis prior to contracting is a procurement best practice. The importance of this practice increases under the concept of partnering whereby long term strategic contracts are created. The goal of a financial analysis is to mitigate risk. As a result of a financial analysis the following may result:

• preempt a contract with a financially unstable supplier
• anticipate problems with an existing supplier under contract
• choose not to renew a contract

In the completion of significant procurements, it is standard to include within a request for bid (RFB) or request for proposal (RFP) a requirement for the provision of financial information. However, uniform application of a methodology for the completion of a supplier financial analysis is often absent from the procurement process.