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Why Red Flag Alert is the Perfect Tool for Accountants

Feb 15, 2023 Red Flag Alert Updated On: October 9, 2023
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, digitising the process so that it saves them time and money. 

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 leading business recovery specialist Begbies Traynor. 

Business owners use our 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.

Our Health Ratings explained:

 Gold: Companies will be very healthy overall. They will have sound financials, a good history of filing compliance, 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: Bronze companies have passed our scorecard and are deemed as healthy but are the lowest band to have done so. These companies still have a low chance of failure but are less financially stable than Gold and Silver. A Bronze company may have some suboptimal financial ratios (eg. gearing, efficiency, liquidity and profitability) that have held them back from a higher rating. Between 35-40% of UK companies will be Bronze rated at any given time.  

One Red Flag: One Red Flag companies are in the weakest 20% in their size category and have not passed our scorecard's threshold to be described as healthy. They may display risk factors that could include a deteriorating financial position or sub-optimal gearing/liquidity, and there may be evidence of recent or significant legal notices. The risk is elevated, and suppliers should seek suitable assurances or guarantees.  

Two Red Flags: Two Red Flag companies are in the weakest 20% of all UK companies and have a high chance of failure and represent a significant risk. There is still a chance that the company may be able to trade back to financial health, but they are more likely to fail. There will likely be evidence of recent and/or significant legal notices. Any credit offered is done so at extreme risk. 

Three Red Flags: Three Red Flag companies make up the weakest 1% of UK companies. 56% of companies with Three Red Flags will cease to trade in the next seven days. They represent the most significant financial risk and are on the verge of being declared insolvent. There are likely to be recent and/or significant legal notices, recent and/or significant count court judgements and will have a deteriorating financial position. 

No credit should be extended. 

 Newly Incorporated: These companies are newly incorporated and have not filed accounts, as such we do not have the data required to score them, and they remain in this holding rating until the point at which they have the information necessary to score. 

 Pre Insolvent: Pre-insolvent companies usually are in the early stages of formally declaring or being declared insolvent and in 98% of circumstances will fail within 28 days. This rating is a pre-cursor to insolvency and as such we would not recommend credit in any circumstance. 

 Provisional: Provisional ratings can be applied to Silver, Bronze, 1 Red Flag and 2 Red Flags when a company has only one set of filed accounts. Any company with a provisional rating should be considered as slightly more of a credit risk than company with the equivalent non-provisional rating. 

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 to 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 and protect your business from bad debt. 

Make Informed Decisions When Taking on Clients

Red Flag Alert’s financial health ratings and in-depth financial data help 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. Or have a look at the Armstrong Watson Case study 


Published by Red Flag Alert February 15, 2023

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