Procurement Glossary
Credit assessment: definition, process and strategic importance in Procurement
November 19, 2025
Credit checks are a central component of modern supplier management and enable a well-founded assessment of the solvency of potential business partners. By systematically analysing key financial figures and market data, purchasing organizations minimize the risk of default and create the basis for long-term, stable supplier relationships. Find out below what credit checks involve, which methods are used and how you can optimally integrate the process into your procurement strategy.
Key Facts
- Systematic assessment of suppliers' solvency and creditworthiness before concluding contracts
- Combination of quantitative financial indicators and qualitative market information
- Reduction of the risk of failure by up to 70% when used consistently
- Integration into the entire supplier lifecycle management process
- Legal protection through due diligence evidence in business partner audits
Contents
What is a credit check? Definition and process at a glance
The credit assessment comprises the systematic analysis and evaluation of a company's economic performance in order to assess the credit risk.
Core elements of the credit rating
A comprehensive credit assessment is based on several evaluation dimensions that provide a complete picture of supplier stability.
- Key financial figures such as equity ratio, liquidity ratios and cash flow development
- Market position, sector development and competitive environment
- Management quality and corporate governance
- Payment behavior and historical default probabilities
Credit check vs. supplier evaluation
While the general supplier assessment focuses on operational aspects such as quality and delivery reliability, the credit assessment concentrates exclusively on financial stability. Both processes complement each other in the context of supply risk management and together form the basis for strategic supplier decisions.
Importance of credit checks in Procurement
In modern procurement management, credit checks act as an early warning system for potential supplier defaults. It enables proactive risk management and supports the development of resilient supply chains through informed partner selection.
Process steps and responsibilities
The structured implementation of credit checks requires clear process steps and defined responsibilities between Procurement, Controlling and Risk Management.
Data collection and information procurement
The first step involves the systematic collection of relevant company data from various sources. Annual financial statements, extracts from the commercial register and credit agencies provide the quantitative data basis.
- Procurement of current annual financial statements for the last three financial years
- Obtaining credit reports from Creditreform or Bürgel
- Analysis of industry reports and market developments
Key figure analysis and scoring
The collected data is evaluated using standardized key figures and transferred to a uniform evaluation scheme. Modern risk matrices support the objective classification of the results.
Decision-making and documentation
Based on the analysis, the supplier is categorized into risk classes. The documentation of all assessment steps ensures traceability and legal protection for future business decisions.
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Important KPIs and target figures for credit checks
Measurable key figures enable the objective assessment of credit assessment quality and support continuous process optimization.
Forecast quality and hit rate
The accuracy of credit rating forecasts is measured by comparing predicted events with events that have actually occurred. A high hit rate validates the quality of the valuation model.
- Sensitivity: Proportion of correctly identified problem cases
- Specificity: Proportion of suppliers correctly assessed as stable
- Positive predictive value: Probability of actual problems with a negative forecast
Process efficiency key figures
Time and costs per credit check reflect operational efficiency. Automation and digital tools continuously reduce these values while maintaining the same level of quality.
Risk minimization metrics
The success of credit checks is reflected in reduced default rates and minimized financial losses. The risk register systematically documents these developments and enables trend analyses.
Risks, dependencies and countermeasures
Inadequate or incorrect credit checks can lead to significant financial losses and supply chain disruptions that require preventative measures.
Data quality and timeliness
Outdated or incomplete information leads to misjudgements about actual supplier stability. Current financial data is often difficult to obtain, especially for smaller companies.
- Implementation of regular data update cycles
- Use of multiple sources of information for validation
- Establishment of direct communication channels with suppliers
Valuation distortions
Subjective assessments and cultural differences can affect objective credit ratings. Standardized assessment criteria and risk policies minimize these effects.
Dependencies on individual suppliers
High concentration on a small number of suppliers increases the impact of creditworthiness problems. Dual sourcing strategies and the development of alternative sources of supply systematically reduce these dependencies.
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Practical example
An automotive supplier carries out a comprehensive credit assessment of the potential supplier before awarding a contract worth millions. The analysis of the annual financial statements shows a drop in the equity ratio from 15% to 8% within two years. In addition, credit reports indicate delayed payments from other business partners. Based on these findings, a bank guarantee is agreed as security and more intensive monitoring is established.
- Early risk identification prevents delivery failures
- Negotiating additional collateral protects against financial losses
- Continuous monitoring enables proactive measures
Trends & developments around credit checks
Digitalization and the use of artificial intelligence are revolutionizing traditional credit assessment procedures and enabling more precise, timely risk assessments.
AI-supported creditworthiness analysis
Modern AI algorithms analyze large amounts of data in real time and identify patterns that traditional methods overlook. Machine learning models continuously improve their forecasting quality through feedback loops.
- Automated processing of unstructured data from news sources
- Predictive analytics for early warning of credit rating deterioration
- Integration of ESG criteria in credit ratings
Real-Time Monitoring
Continuous monitoring replaces selective audits and enables proactive reactions to changes. Early warning indicators signal critical developments even before they manifest themselves in the annual financial statements.
Regulatory tightening
New compliance requirements and due diligence obligations increase the importance of documented credit checks. The Supply Chain Due Diligence Act reinforces the need for systematic supplier financial analyses.
Conclusion
Credit assessment is evolving from a reactive control instrument to a proactive control element of modern procurement strategies. Digital technologies and AI-supported analyses enable more precise risk assessments while reducing process costs. Companies that integrate systematic credit checks into their supplier management processes create sustainable competitive advantages through more stable supply chains and minimized default risks.
FAQ
What does a professional credit check cost?
The costs vary between 50 and 500 euros per audit, depending on the scope and data sources. Credit reports cost 20-80 euros, while detailed analyses with external consultants can reach several hundred euros. In the case of regular audits, the unit costs are reduced considerably through framework agreements.
How often should credit checks be repeated?
Strategic suppliers require annual checks, while semi-annual or quarterly checks are advisable for critical partners. Event-based checks in the event of negative market reports or payment delays supplement the regular cycles and ensure prompt risk assessment.
What legal aspects need to be considered?
Data protection provisions of the GDPR also apply to credit checks, in particular when processing the personal data of managing directors. Obtaining credit reports is generally permitted, but requires a legitimate interest. Documentation obligations under the Supply Chain Due Diligence Act increase the importance of systematic checks.
How are small suppliers without annual financial statements evaluated?
In the case of small companies that are not required to prepare balance sheets, the assessment is based on alternative indicators such as business registration, commercial register entries and payment history. Self-reported information, references from existing customers and industry experience supplement the limited financial data. Lower order values justify simplified verification procedures.
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