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Mitigate Onboarding Risk with Red Flag Alert

Mitigate Onboarding Risk with Red Flag Alert
Aug 03, 2019 Red Flag Alert Updated On: August 16, 2023

Onboarding a large number of new clients can be challenging, especially when it comes to your due diligence process.

Consider the damage of finding a client to work with, only to put them through the sales funnel and find they don’t pass credit checking.

It has wasted the time of your sales and marketing team, and your finance team who then have to spend their valuable resources chasing up late payments. It could even impact on your legal team if they need to take action against unpaid debts.

These inefficiencies cost time and money. At the same time, turning away valid customers costs you revenue so you must find the right balance.

Defining Your Onboarding Process

You want to work with financially secure businesses and reject those that pose a credit risk. Building a policy that allows you to quickly put a business into a box of ‘accept’, ‘reject’ or ‘further due diligence’ is critical. This is where Red Flag Alert is really powerful.

Using Red Flag Alert’s Health Ratings

To enable you to quickly identify those ‘trusted’ and ‘tricky’ clients, Red Flag Alert gives every business in the UK a health rating. These ratings are based on over 100 indicators of financial health to help you mitigate your onboarding risk.

For example, ‘Gold’ standard companies are defined as those with optimal liquidity and ideal levels of gearing. Combined with a wealth of other factors, these businesses are deemed very low risk and, therefore, open credit is recommended.

In contrast, a ‘One Red Flag’ business might be in a deteriorating financial position with suboptimal gearing and liquidity. Combined with other indicators, this will likely be a client your business either wants to avoid or carry out further due diligence on.

Red Flag Alert saves your business time as it allows you to set clear criteria internally about the financially healthy businesses you want to work with or those you want to avoid. You can choose to have fixed credit decisions based on the health rating.

Alternatively, you may be more flexible on certain ratings and conduct due diligence on a certain subset of businesses.

It’s a case of assessing the risk within your business and being clear with your team so everyone knows the level of risk they can accept.

One of the most powerful features of Red Flag Alert is that the business information is in real time. It means that every decision you make is based on the latest data. You can also monitor businesses so if there are any changes to their financial position you’ll be notified immediately, allowing you to make any necessary changes to protect your business.

Evolving Your Onboarding Process

You may set up a process on day one. However, the onboarding risk assessment process is one that constantly needs reviewing.

You need to ask yourself if the hypothesis made at the start held true or did unexpected credit risks emerge?

If credit risks did emerge, were those risks acceptable? Alternatively, was your risk level too conservative – did you refuse businesses that would have grown your profits? If so, it might be a case of loosening the controls until you find the right balance.

A risk assessment is a living, breathing document that senior management in a business should have in place to educate staff about the acceptable level of risk.

Power Sales and Marketing

Most business leaders we meet approach onboarding as a reactive function. Sales teams provide leads and then due diligence is performed.

This process can and should be turned on its head.

By first identifying leads that will pass due diligence, a finance team can provide incredible value to sales and marketing teams.

Depending on the criteria for onboarding companies, 35% or more of the target market may not pass due diligence. Telling sales and marketing teams to ignore such leads saves time courting businesses that can’t become clients, and allows the business to focus on those that can.

It may also be true that the most financially secure businesses make the best clients because they are likely to pay on time and may have more chance of growth or increasing spend.

Why are Red Flag Alert’s Health Ratings so powerful?

Using Red Flag Alert’s health rating, you can quickly decide on the suitability of a company, knowing that the health rating is backed up by a vast amount of rich and varied data.

Within Red Flag Alert, there is a health rating for every business in the UK. This health rating is based on over 100 data points, collated from more than 10 leading data owners, to give the clearest indication of the health of a business. Ratings are highly specific and indicate the risk of business failure over the next 12 months.

Each day there are over 100,000 updates to ensure you’re making decisions based on the latest information – these updates pull in SIC code, VAT registration and creditor services data.

Red Flag Alert also uses machine learning to assess micro-entities. You can set up alerts so you’re aware of each update, allowing you to protect your business from new risks.

All the data within Red Flag Alert is constantly reviewed by credit experts to ensure it is accurate, so you can mitigate your onboarding risk and grow your business.

For more information about how Red Flag Alert data can help, start a free trial today.


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