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Three Reasons Why Red Flag Alert is a Necessary Tool for Accountants

Three Reasons Why Red Flag Alert is a Necessary Tool for Accountants

Accounting firms face the same issues as many other companies – namely, how to ensure they have a steady stream of customers, and how to avoid business risk. Red Flag Alert is a solution that can help with both problems. Let’s dive in to find out how.

What is Red Flag Alert?

Red Flag Alert is a business intelligence tool that provides data on every company in the UK. The product was first introduced in 2003 by business rescue firm Begbies Traynor.

Business owners use this intelligence to help make better, more informed decisions to avoid risk and grow their company. It’s an indispensable tool for sales, risk management and compliance.

Red Flag Alert provides:

  • Financial health ratings that accurately predict business failure.
  • The details of 20 million key decision-makers at UK businesses.
  • Data that is updated 100,000 times every day.
  • The ability to filter this data based on 50 plus metrics.

Central to the product is the unique financial health rating system – this accurately predicts business failure and is especially useful when it comes to due diligence and choosing which companies to work with.

Health Ratings explained:

Gold: Companies will be very healthy overall. They will have sound financials, a good history of filing compliance, with ideal levels of gearing (proportion of loan capital), optimal liquidity, and a generally favourable trend, with no significant or recent legal notices. Considered to be very low risk and open credit is recommended.

Silver: Companies will be stable overall. They will have healthy financials, and a normal history of filing compliance. Gearing will be within an acceptable range, with reasonable levels of liquidity. If the trend is not upward, any declines will be modest, with few if any significant or recent legal notices. Considered to be low risk and open credit is recommended.

Bronze: Companies will be in acceptable health. They may not have published accounts or are newly formed, but nothing significantly detrimental is known. Where financials are present, gearing may be higher than normal, or liquidity may be lower than ideal. The financial trend may be down, and there may be some history of legal notices. Considered to be a fair trade risk and open credit is recommended.

Amber: Companies are newly incorporated or have only passed the lower threshold of the credit score algorithms, and display some financial, payment or filing characteristics that make them an elevated risk. Considered to be a moderate risk so open credit is only recommended with caution. 

One Red Flag: Companies are in the weakest 20% in their size category and display risk factors that might include a deteriorating financial position, sub-optimal gearing/liquidity, and/or the presence of more recent, or significant legal notices. The risk is elevated, and suppliers should seek suitable assurances or guarantees.

Two Red Flags: As above, but with additional risk factors, such as recent county court judgments of a materially significant value. Very high risk and guarantees advised.

Three Red Flags: As above, and 56% of companies with three red flags will cease to trade in the next seven days.

Grow Your Business

Accountants typically rely on referrals for new business. While this can work, it is limited by the size and quality of their network. Using Red Flag Alert data helps accountants take control of their sales and marketing activities, which in turn can help them acquire more and better clients.

Here are a few ways Red Flag Alert can help accounting firms grow their business.

Find Businesses that Fit Your Ideal Client Profile

Accountants can filter companies in the Red Flag Alert database based on the characteristics of their ideal client. By segmenting the market like this, they will gain a list of companies they can prospect.

Use Sales Triggers to Spot Opportunities

Certain signs, such as changes to financial health or the appointment of key staff, could suggest that a business is more likely to need the services of an accountant. Red Flag Alert’s data is updated over 100,000 times a day, which means those with access will be in the best place to take advantage of these opportunities as soon as they emerge.

Monitor Existing Clients to Sell More

Monitoring the financial health of clients you already work with allows you to suggest tailored solutions to the issues they are experiencing, for example, rapid growth or specific financial challenges.

Tailor Sales Pitches to Issues the Customer is Facing

Having in-depth information about a company allows you to tailor pitches or sales presentations to a prospective customer’s specific circumstances (read more about tailoring sales presentations here). Showing exactly how your services can help will result in a more potent sales presentation.

Manage Risk

Unfortunately, if you provide services a company that fails, it can be difficult to recover your cash; typically an unsecured creditor will see less than 10% of the money owed. Red Flag Alert can help you avoid this risk in several ways.

Make Informed Decisions When Taking on Clients

Red Flag Alert’s financial health ratings and in-depth financial data helps accountants make informed decisions relating to the clients they take on. They can see when a client may be a risk to trade with, and either decide to work with other clients or demand better payment terms from the customer.

When clients have a good financial rating, accountants can take them on safe in the knowledge that there is little risk associated with the business. 

Spot Early On When Existing Clients Enter Trouble

Accountants can set up alerts that notify them when a client they are already in business with experiences issues. By gaining this knowledge as soon as it occurs, accountants can begin to take steps to protect themselves from risk.

Manage Regulatory Risk

Financial risk isn’t the only issue facing accountants. Falling foul of regulations can result in large fines that can be devastating for businesses. Red Flag Alert provides solutions to help accountants stay compliant with the most up-to-date money laundering regulations.

Anti-Money Laundering (AML)

Since 2017 much legislation has been introduced to tackle financial corruption. These are:

  • The Fourth Anti-Money Laundering Directive (AMLD4).
  • The Money Laundering, Terrorist Financing and Transfer of Funds Regulations.
  • Criminal Finances Act.

These regulations put the responsibility on businesses to be aware of who they’re working with, and make them accountable for any connection to money laundering. Business owners cannot claim they were unaware of any infringements of these regulations.

Red Flag Alert’s AML solution ensures businesses stay compliant with the above regulations by providing a service that includes:

  • Full range of risk level checking.
  • Unbeatable match rates.
  • ID verification.         
  • Enhanced due diligence.
  • Monitoring alerts.
  • Simple interface.
  • Secure audit trail.

Contact Us for a Free Consultation

Red Flag Alert is committing to ensuring our customers get the most from our solution. If you want to see the specific ways Red Flag Alert can help your accounting business, contact Richard West to set up a free consultation on richard.west@redflagalert.com or 0344 412 6699.

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Contact

Red Flag Alert
302 Chambers Business Centre
Chapel Road, Hollinwood
Oldham
Greater Manchester
OL8 4QQ
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