Types of financial risk: the top 4 that deserve your attention and how to avoid them

 


Do you know what are the main types of financial risk to which a company is subject?

Every business is subject to risks, but that doesn't mean you can't avoid them by doing risk management !

Understanding the risks that surround your business is essential so that you can prepare yourself if they materialize, minimizing the negative consequences as much as possible.

Thinking about it, we prepared this article with the 4 main types of financial risk that deserve your attention.

Read on to find out what they are and how you can manage them.

4 types of financial risk

1 - Credit risk

Credit risk, considered one of the most common, refers to the possibility that the company does not receive the amounts due from a loan or when payment for some goods is not made on the agreed date.

Many companies that accept bank slips as a form of payment are more susceptible to credit risk. This is because the customer, after having access to your product, may not pay the bill generated.

In this case, it is essential that the delivery of the product or release of the service takes place after confirmation of payment.

Credit risk also applies when the company needs to take out a loan to finance some investment in infrastructure, for example, or when there is a need to negotiate a deadline for paying for goods with suppliers.

The higher your company's credit risk, the higher the interest. Therefore, seek to develop a positive reputation with banks, creditors and suppliers.

2 - Liquidity risk

In general terms, we can define liquidity as the ability of a given asset to be converted into immediate cash. Some assets can be converted quickly, while others tend to take a little longer.

In the case of liquidity risk, we are referring to the company's ability to convert its assets into cash when necessary. The greater the liquidity, the lower the risk of the company not being able to meet its financial obligations, such as the payment of creditors and dividends between partners and investors.

Generally, liquidity risk is linked to the management of the company's working capital, which acts as an immediately available cash reserve to cover the costs of the business and keep it running.

3 - Market risk

Continuing our list of types of financial risk, we have the one related to the market.

Price fluctuations among suppliers, exchange rate fluctuations, stock exchange quotations and commodity prices are some of the factors linked to market risk.

This type of risk refers to the possibility of the company presenting negative results due to variations in the market of which the business is a part.

The emergence of new competitors with more affordable prices is a type of market risk. Likewise, the variation in the dollar price is a market risk for companies that sell imported products or that buy raw materials from abroad.

4 - Operational risk

Completing our 4 types of financial risk, we have operational risk.

It refers to the risk of loss that a company runs in relation to its daily operations. That is, poorly trained employees, obsolete machinery, inefficient systems and precarious working conditions are examples of operational risk factors that can cost the company dearly.

With that in mind, seek to identify weaknesses and implement improvements in everything related to the operational aspect of your business. When the operation goes well, with all processes flowing correctly, the risk of losing money as a result is significantly reduced.

Decrease errors and save time with an invoice manager

With invoice management software you reduce errors and save time, so it is very important to have them.

In addition, a good invoice issuing tool like ERP can bring several other advantages:

  • Intuitive control panel, so you know everything you billed, when, to whom, etc;
  • Automatic calculation of taxes, so there are no errors!
  • Agility, because XML and HTML files are automatically generated and sent to customers by email;
  • Economy, because  it gives a discount on the digital certificate ;; You can use more than one company on your account, which even allows you to use reseller mode;
  • Automatic forwarding of notes if the city hall website is down;
  • Easy to integrate via API with other systems , such as your financial system, for example.

 

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