Getting the bigger financial picture does more than lower risk

22 November 2022 | 15 Shares

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Although the last few months’ financial figures have not made entirely depressing reading, the medium- to long-term future of the UK economy has several storm clouds hovering above it. Chief among these are unpredictable energy prices and the prospect of quantitative tightening as the government attempts to stave off the twin evils of recession and inflation.

In many UK businesses, directors are choosing either to enter their companies into voluntary liquidation to avoid bankruptcy, or are working to extend their creditors’ patience (including HMRC) in the hope that things will improve. In defence of such reactions, there are certain sectors that are holding up well in difficult circumstances: health and social care, for example, and information & communication both saw modest growth in the first two quarters of the year.

Keeping the business afloat is a natural instinct for many decision-makers and business owners, and in many cases, such an instinct may well prove worthwhile in the longer term.

Nevertheless, in difficult times, it can be tempting for companies to grasp at any opportunity that comes their way, regardless of how tenuous the chance may be. Processes like due diligence are easily shelved or lessened, temporarily, and that can leave organisations open to increased risk, from bad debt, fraud and regulatory fines. That’s an issue compounded by bad actors taking advantage of businesses on the edge. Instances of fraud and money-laundering will inevitably rise, and it’s companies from every sector that are likely to be impacted negatively.

Therefore, at every stage of the business process, companies have to be careful about whom they might do business with, and also should re-examine the prospects of continued business partners, clients and long-term customers.

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In these circumstances, the default organisation to turn to is likely a credit reference agency to ensure the organisation’s risk posture remains as low as possible. But “traditional” agencies lack the ability to produce data that’s fully up-to-date. They’re reliant on manual searches of readily-available resources, like Companies House data, or other mandatory filings that may have been made before the full effects of the current downturn were apparent. That type of information is effectively out-of-date as soon as it’s available.

In a fully digital age, up to date data is possible, yet traditional credit reference agenices still rely on outdated data sources such as the last filed accounts from Companies House. When every penny counts, basing business decisions – or even finding decent prospects – on inaccurate data is worse than foolhardy: it could spell a company’s demise.

Of course, sleuth-like compliance officers or finance professionals may be able to piece together more up-to-date and relevant intelligence on a key partner or two. But not only does that type of manual vetting not scale, it’s also likely a misallocation of precious resources. What’s needed is a solution that pulls together close to real-time data from multiple sources to give the business a clear picture of other entities in a business’s environment.

Here on the pages of Tech HQ, you’ll see many references to interoperability and reuse of data. Typically, specialised platforms can exist in a virtual data silo that prevents different business functions from accessing information that’s valuable right across the board. In the case of up-to-date financial and risk data, the information’s value increases the newer and more complete it is. To take a couple of examples, Sales teams’ activities can be better focused towards prospects that present the least financial risk. Marketing departments too can easily waste their resources attracting companies that have, for instance, suffered recent reputational damage after a cybersecurity breach or the high-profile departure of a key individual.

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Most credit reference agencies rarely present rich data to their clients beyond the needs dictated by an older definition of what’s required for due diligence. That’s unfortunate, because detail that’s right up to-the-minute can and should have a significant influence on the decisions made everywhere in a company. Circumstances for every organisation in the UK at present can turn on a sixpence, and being appraised of the real situation in regards to new business, partnerships and long-term relationships helps companies lower their own risk and maintain better finances.

Our assessments of digital-first credit reference agencies have surfaced Red Flag Alert as a primary example of a company offering a modern third-party business data platform that helps companies do business more safely. Staying compliant, having watertight KYC procedures and strict AML measures are table stakes in the current economic climate. Red Flag Alert provides these, but combines them with over 180 external data sources gathered in real time. It uses a unique algorithm based on 15 years’ insolvency data to present risk management, sales, marketing and finance professionals with rich information that lowers risk and sharpens focus.

In a second article we’ll be taking a deeper dive into the platform to flesh out more detail (like how the Red Flag Alert data can be parsed by existing systems, Sales CRMs, finance software, martech and so forth). But if what you’ve read here chimes with you, head over to the company’s website to read more, or sign up for a week’s trial.