Mark Halstead of Red flag alert Write about the importance of carrying out due diligence to mitigate risk in your business.
The world of professional security focuses on protecting customer property, whether physical or digital. However, it is also important to protect yourself; Have you ever stopped to think who your customers really are? With more and more UK companies falling into financial difficulties, it is increasingly important to protect their own business against the potential impact of the failure of their customers or suppliers. The data shows that 14 percent of all active UK companies are in significant difficulties, with an increase in the company's average debt from 122 percent in just three years to £ 66,000.
Certain companies are at greater risk than others; For example, companies with a director / shareholder position on commercial assets are 2.8 times more likely to fail than others.
Under these unstable conditions, it is increasingly important to know these risks and carry out thorough due diligence.
1. Due diligence of the supplier: Verify that your supplier is legitimate and financially secure to minimize risk and avoid having to deal with pending projects.
2. Incorporation of new clients: evaluate the financial health of the new clients during the incorporation to ensure that they approve credit checks and do not pose a future risk.
3. Monitoring of current clients: The financial health of current clients may fluctuate and should be evaluated regularly so that it can respond to any change in circumstances.
4. Create sales and marketing lists: the use of data can help you understand and segment the market to focus on the best prospects.
Supplier Due Diligence
Finding the right provider can be critical for the proper functioning of your own business. It is important to know the quality of the service they provide, verify credentials and evaluate financial health.
Verify that they have the correct accreditations, qualifications and insurance and request to see evidence or verify with the corresponding registration body. It is also important to ensure that your suppliers enjoy good financial health so that the provider can complete your project. Know the liquidity and capital adequacy of the company, both factors that can increase the potential risk of working with a supplier. Find out who finances the business and proceed with caution if they are not the owners. If you are not willing to invest in the business, why should you do it?
Mitigate shipping risk
Before incorporating new clients, it is important to carry out due diligence to ensure that they represent a minimal risk to your business. Nothing is more frustrating than spending a lot of time and energy to win a customer just to discover that they do not pass credit verification or become customers and do not make payments, so performing due diligence beforehand can save you time and money. . Take the time to clearly define your incorporation policy so you can concentrate on working with companies that are financially secure and reject anyone who presents a credit risk.
The data can be used to assess the credit risk of new customers taking into account factors such as liquidity or leverage levels. Real-time updates can also inform you of any sudden changes in your financial position so you can protect your business accordingly.
It is important to carry out due diligence on existing customers, as well as new ones, to mitigate any emerging risk to your business. The fact that a client was financially secure six months ago does not necessarily mean that the same is true now, particularly with more and more UK companies facing insolvency. The real-time data will notify you of any changes in the circumstances of your client. If there is a reduction in profitability or if your customers have problems with cash flow, knowing it from the beginning can help you protect your own business. On the contrary, these updates can also highlight when your customers may be receptive to making more purchases, for example, if their earnings have increased or if they have a new director who may be interested in your product.
Create sales and marketing lists
Carrying out due diligence can also help ensure that your sales and marketing teams target potential customers who are likely to be more interested in your product or service.
Having detailed data on the sector, revenue and business location can help you segment prospects into different buyer profiles. With highly specific customer segments, your sales and marketing team can adapt their efforts more specifically in different groups. For example, you may be selling your access control system to a wide range of customers with diverse needs. By segmenting customers into groups such as "gyms and leisure centers," "banks" and "offices," your sales team can focus on the characteristics of your product that are more attractive to each different group.
Perhaps the gym might be looking for an access system that allows members to easily enter and leave the building with 24-hour access and an access card system, while a shared workspace may be more focused on registration features. of visitors. A reasonable due diligence process will help eliminate considerable uncertainty and risk. Whether you are on a public list or a small business, access to the right data is increasingly important.
About the writer
Mark Halstead is a partner of Red flag alert, which provides detailed financial health ratings in UK companies to help companies carry out due diligence and make informed credit decisions.