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So you Think you Understand Business Credit Scores?

Feb 21, 2024 Red Flag Alert Updated On: February 21, 2024
So you Think you Understand Business Credit Scores?

Credit scores are a useful tool to enable businesses to assess the creditworthiness of their counterparts. It’s an essential part of most onboarding processes and is often the optimal way for organisations to protect themselves and remain compliant.  

But do credit scores paint the full picture for businesses, or are businesses missing out on key information?

One of the main drawbacks of regular credit scores is the way in which creditworthiness is not evenly distributed across the zero to 100 scale. For example, to the untrained eye, the difference between a score of 39 and 40 is negligible. However, businesses with a score of 39 are three times more likely to fail than those with a score of 40. 

So, with this in mind, it quickly becomes clear that the barriers to understanding a business credit score are unnecessarily high. 

This is why Red Flag Alert has transformed the way companies utilise business credit scores, creating an all-in-one solution to replace the outdated process. But how does our revolutionary Health Score compare to the regular business credit score?

Standard Business Credit Score 

 In comparison to Red Flag Alert’s effortless scoring and breakdown, conducting a business credit score check involves a comprehensive process with numerous steps.

Beginning by determining which business credit reporting agencies will be used and providing detailed information about the relevant business, this process typically requires the business name, address, and other relevant identifying details.

Once a formal request for the credit report has been submitted to the chosen reporting agency, plenty of time has been spent filling out exhaustive online forms, making phone calls, or sending emails.

The result is an in-depth report that must be meticulously reviewed for accuracy and completeness. Further time must be set aside to assess the report for any errors or discrepancies that could adversely affect the business's credit score.

Unlike Red Flag Alert’s clear and actionable Health Score, to take the necessary action on a regular business credit score, organisations must familiarise themselves with the scoring system. This requires extensive time and resources to be able to identify and understand the factors that influence the score and their potential impact on the business should the onboarding process be completed. 

Considering the exhaustive nature of this process, it's worth questioning whether any business department or employee could undertake it independently to save time. 

However, while some may possess the requisite knowledge and resources, entrusting such a critical task to non-specialists might carry risks.

The complexity and importance of accurate credit reporting highlights the value of using professionals or dedicated services to ensure thoroughness and reliability in the credit check process.

Red Flag Alert’s Business Credit Reports Explained

While there are services offered by organisations and individuals to help companies conduct and understand business credit scores, these can be costly and take just as much time as in-house assessments.

This is due to creditworthiness assessments involving a systematic evaluation of various factors, ultimately leaving businesses vulnerable to potential pitfalls.

This extra level of scrutiny makes the already exhaustive process longer whilst increasing the chance of missed risk predictors, or a lapse in compliance measures. 

These pitfalls can lead to inaccurate creditworthiness assessments and may result in unfavourable onboarding and lending decisions. 

At Red Flag Alert, we believe a credit score should be accessible, and reliable, allowing anyone in a business to make confident, informed decisions. 

By aggregating data from various sources, including public records, business registries, and credit reporting agencies, our credit rating and health score provide insights into potential financial instability, fraud, or other issues that could impact a company's creditworthiness.

Our business Health Scores are paired with business reports that break down the intricate details into easy to digest, actionable information.

Our sophisticated algorithm also utilises these business reports, along with various other data points to provide the following information on each company:

  • Financial health rating 
  • Red Flag Alert rating description 
  • Recommended credit limit 
  • Number of CCJs 
  • Liquidity 
  • Net worth 
  • Number of employees 
  • Turnover 
  • Accounts filed 
  • Last Red Flag Alert data update 
  • SIC code and description 
  • Company details 
  • Contact details 
  • Director details

How Red Flag Alert Solves the Pitfalls of Traditional Credit Scores 

Using this information, Red Flag Alert’s platform presents the current rating of a business, alongside its previous rating and its growth score

This instant snapshot provides a complete picture of a business, alongside descriptions to facilitate further analysis. All of this is available upon a basic search, allowing businesses to become the experts in a matter of seconds. 

Across most company credit checks, valuable time and resources are wasted on chasing, validating, and analysing data. Red Flag Alert's credit score and growth rating offer a comprehensive understanding of a company's financial health, providing valuable context behind the score. This information is invaluable for various purposes, including assessing creditworthiness for lenders and ensuring reliable supply chains for suppliers.

By leveraging Red Flag Alert’s Health Score, businesses can perform due diligence by conducting credit checks on potential prospects and leads. This proactive approach enables companies to create sales lists that exclusively feature financially sound companies, enhancing the efficiency and effectiveness of sales efforts.

The businesses being onboarded are also more likely to have a smoother experience, as the process is sped up exponentially and the pursuit of customers that would fail a company credit check is immediately avoided. This can foster a stronger relationship, improving the chances of retaining the customer or client, and saving on resources in the future. 

The real-time data provided by Red Flag Alert enables businesses to react promptly to changes in a company's financial status. This capability is crucial for ensuring the longevity of business relationships, as it allows companies to anticipate and address potential risks promptly.

The likelihood of overemphasising a single factor and relying solely on credit scores is also diminished with Red Flag Alert’s Health Score. Whilst basic credit scores offer valuable insight into a business’s creditworthiness, those conducting the credit check will often have to deep dive into extensive datasets. 

Instead, the Health Score offers a holistic approach, rather than focusing excessively on a single factor. By considering multiple factors, organisations can secure a comprehensive understanding of the financial situation and repayment capabilities of the company they are onboarding.

By going beyond traditional credit scores, real-time data and insights are available to anyone. This opens the door to understanding any temporary hardships or extenuating circumstances that may have affected the financial stability of the business being checked.

This enables a more informed decision-making process, as lenders can review explanations and supporting documentation to make an immediate and complete assessment of the borrower's creditworthiness.

Put into Practice - Mitigate Risk and Protect Growth

Our Health Score turns credit scores on their head, transforming the data into digestible, actionable, and reliable reports. In turn, this will speed up risk management processes, create transparency to improve trust and maintain a professional identity for the business.

Learn more about business credit ratings with experts Mark Halstead, Director of Data, and James Piper, CEO at Lightbulb Credit, for a deep dive into everything relating to a company credit rating. 

Check out the webinar and learn everything you need to know about your company credit score and begin your free trial to make fast and informed decisions, now. 

Published by Red Flag Alert February 21, 2024

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