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Why Red Flag Alert is the Perfect Tool for Accountants

Feb 15, 2023 Red Flag Alert
Why Red Flag Alert is the Perfect Tool for Accountants

Accounting and Auditing 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 Accountants source new business and remain compliant. 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 client risk assessment tool to help make better, more informed decisions to avoid risk and grow their company.

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.

This also includes the ability to search by industry, as well as an auditor search. This offers the opportunity to monitor competitors’ clients and potentially poach them.

Monitor Prospective Clients to 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 180,000 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. Receive real time alerts to capitalise on business opportunities.

Monitor Existing Clients to Sell More

Monitoring the financial health of clients, you already work with allows you to suggest tailored solutions to their business needs, for example, rapid growth or specific financial challenges.

Receive real time alerts on critical events and provide support when it is most needed.

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. 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 many ways. Take a look into our page on RFA for Accountants.

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). This has now evolved into The Fifth Anti-Money Laundering Directive (AMLD5)
  • 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 for accountants helps firms remain 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.

 Book a demo today to find out how Red Flag Alert’s Find and Compliance solutions can help your business achieve your goals and aid you in avoiding financial risk. 

Published by Red Flag Alert February 15, 2023

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