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How to Avoid Loss Making Accounts

Apr 11, 2020 Red Flag Alert Updated On: October 10, 2023
How to Avoid Loss Making Accounts

Non-paying accounts are a critical problem for businesses – and not just because of lost revenue.

Equally damaging is the wasted time and resources that were invested in getting that customer to buy.

With the Covid-19 crisis set to continue throughout the next 18 months, your customers may be in financial difficulties when you come to collect payment from them.

Insolvent debt has serious knock-on effects and is often a fatal blow for a business. Companies which incur bad debt from insolvent customers are three times more likely to fail within a year.

It is vital, therefore, to ensure that your prospects are financially healthy before you even consider them as a potential lead – otherwise you run the risk of compromising your own business.

Government Financial Support Forestalls Bad Debt – But Not Forever

With the Covid-19 pandemic having brought the UK economy to a virtual standstill, one would expect insolvent bad debt to be high.

However, it might surprise you to learn that levels of bad debt in the UK economy actually fell by around £189m during the last quarter.

Of course, this is because government financial support measures have been propping up many businesses that would otherwise be failing.

Furthermore, creditors are generally more flexible, HMRC has been more lenient, and legal action against companies in financial distress has been suspended.

Once this unprecedented level of support comes to an end, bad debt will likely soar, and the UK will experience successive waves of it.

Bad Debt in Retail Is a Warning of Things to Come

The fortunes of the retail sector are often seen as a barometer for the future performance of the economy as a whole.

The impact here is telling. Retail has been one of the sectors to see an increase, with insolvent debt having grown by £6m, or 12.6%, during the last quarter – even with the support measures.

B2B Sales Teams Need to Pay Attention

Most sales teams choose their prospects based on fit and intent, i.e. those who fit their customer avatar and have high intent to buy a product like yours in the near future. This makes sense as sales teams are usually rewarded for achieving sales, not for collecting payments.

However, it’s not enough to only consider fit and intent. Sales teams must also assess a prospect’s risk to determine whether they are a creditworthy client.

By building in upfront credit checks and understanding a prospect’s financial situation before spending valuable time and resources on them, you’ll protect your own business and be able to zero in on financially healthy clients who also meet your fit and intent criteria.

Build in Upfront Credit Checks

This level of fragility in the UK economy means that there is risk at every stage of the customer cycle. Sales teams must have access to in-depth data on their prospects so that they can ensure they are focusing on clients who are 1) financially healthy and 2) a perfect fit for their product.

In B2B sales it can take a tremendous amount of time and energy to close a sale – from creating content and pitching to engaging with prospects and onboarding, it often involves multiple employees across teams. It can take weeks or even months to complete.

To win the contract and then discover the customer can’t be onboarded because of poor financial health is devastating and represents wasted time, money and resources, which could have been saved with a simple pre-screening process.

Data Is the Key

The solution is to change the way you approach lead generation.

By using data in lead generation you can provide your sales team with a list of pre-qualified leads that fit the right criteria for your business.

This includes financial health. By choosing to only work with those companies that – for example – have healthy revenues, up-to-date accounts and no charges on their assets, you can take steps to protect your business from failure.

This also allows sales managers to see which prospects present the most significant risk and use this information to pursue only healthy prospects that are a perfect fit for their product.

How Red Flag Alert Can Help

At Red Flag Alert, our service isn’t just limited to spotting financial health; it can also be used as a sales tool to find opportunities.

Every day we capture hundreds of data points on every UK business. Our AI-powered algorithm enriches the data to provide unique insights into turnover, SIC code, employee numbers and more.

Sales teams can set up triggers to alert them when changes occur at a company that position them as a potential lead.

For companies like lenders or administrators, for example, data that highlights companies in financial distress can help them to find the right customers and provide solutions.

Using these triggers can improve closing rates by up to six times by enabling you to target the right companies at the right time.

Other benefits to using sales triggers include:

Find Your Ideal Customer – Search by industry, performance, location and more.

Make Contact – Our database provides up-to-date contact details and is GDPR compliant.

Simple Export – Any data you require on a company can be downloaded immediately and disseminated across your business.

A Decisive Competitive Advantage

The economic impact of the pandemic is far from over, so it is more important than ever to avoid a future financial shock by ensuring that your sales team is only pursuing financially stable customers.

By automating your lead generation with Red Flag Alert you ensure that creditworthiness is dealt with at the beginning of the process, while also gaining many other capabilities that will give you a decisive advantage over your competitors.

Red Flag Alert is the UK's most comprehensive credit control management tool. To discover how your business could benefit from Red Flag Alert's rich data set to reduce risk and for enhanced decision making, request a free trial.

Published by Red Flag Alert April 11, 2020

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