Five Ways Red Flag Alert Helps Start Ups And Scale Ups Grow
by Rory Traynor
The construction industry is one of the most sensitive to economic turmoil and when the economy falters it inevitably feels it first and most keenly. This is especially true at the moment and many construction companies are struggling to survive.
The historically slim margins of construction projects left the industry especially vulnerable to the delays caused by COVID, labour shortages, supply chain issues and soaring costs seen in recent years. These factors along with significantly decreased demand has led to an epidemic of insolvencies and bad debt within the industry.
When a company goes insolvent, its creditors must then absorb that bad debt and interruption to their cashflow, which is obviously significantly more difficult in times of economic hardship. Each of these creditors that fails themselves then places pressure on their own creditors and thus insolvencies caused by bad debt can be seen to travel in a ripple effect. Statistics show that a company that suffers a bad debt is three ties more likely to go insolvent themselves.
It is estimated that by the end of 2023 there will be over £1 billion of bad debt within UK construction.
Red Flag Alert data shows that over 57,000 construction companies are experiencing financial distress and the recent collapses of the Jehu Group and the Buckingham Group show that it is no longer only small and midsized companies at real risk of insolvency. In fact, 581 of these companies have turnovers above £10 million and 71 of these are showing signs of severe financial distress.
In times of increased insolvencies larger, high turnover companies are relied upon break the chain of business failure that travels through individual industries. This is because when economic hardship arises it will invariably be small companies which start to fail first.
As more collapse, each adds to the bad debt ‘snowballing’ through the industry, with each new bad debt adding an additional stressor to the company that suffers it. Eventually, in theory, the ripple effect of bad debt will reach the companies that are able to absorb it, which breaks the chain of business failures caused by bad debts and insolvency rates start to return to decrease. For a company to be able to survive both the pressures of an economic downturn and bad debts, they will require the reserves, backing and ability to generate business that are normally reserved for larger companies.
However, should a large company fail the effects can be disastrous. This is because each can have hundreds or even thousands of creditors that offered significant lines of credit. This is especially true of the construction industry, where large construction companies rely heavily on contractors from across the breadth of the sector to complete projects. In this way, they can serve as a significant amplifier of insolvency rates. For example, when Carillion failed they had a book of 30,000 creditors that were owed around £7 billion between them.
It is often assumed that the bigger a company is the less likely to fail it is and therefore regarded as credit safe. This combined with large companies ability to hide the level of business distress they are experiencing means it is usually difficult to accurately assess their level of credit risk.
At Red Flag Alert, we have a proven track record of accurately predicting business failure, both large and small, not only in the construction industry but also across the entire economy. We were the first to identify the early warning signs of insolvency at Carillion and recently gave our customers prior warning of the collapse of both the Jehu and Buckingham groups.
Why trust Red Flag Alert?
At Red Flag Alert spotting the early warning signs of business failure is in our DNA. We were originally developed by the UK’s largest insolvency practitioner, Begbies Traynor, to do just that. Based on the incredible success of the Red Flag Alert platform they soon took it to market and now we are a fully separate company and the UK’s only independent credit reference agency.
Now, twenty years later, we maintain the UK’s leading insolvency score and can predict the financial health of a business with an industry leading 92% accuracy. We were the first to predict such notable business failures as Carillion, P&O Ferries, Bon Marche and the Acadia Group; and we recently gave our customer vital early warning of the failures of the Jehu Group and Buckingham Group.
We are successful not only because we understand business health but because we understand what businesses need to make data work for them. We are continually innovating in what data we can bring to our customers, how fast we can get it to you and what it can tell you.
We supply detailed yet easy to understand reports on every UK company and each one includes our straight forward company health ratings that clearly show their financial health and risk to your business.
Our platform includes:
- Detailed and easy to understand company reports on every UK business
- Innovative financial health ratings to clearly show a company’s financial health and level of risk to your business
- Live CCJ feed
- Unadvertised petitions including winding up petitions
- A monitoring tool that allows you to create separate customisable company monitoring lists where you choose what generates alerts and share them throughout your company
- Our B2B Data that lets you find your perfect customer or supplier by choosing from over 100 filters, including our growth score
- A time saving fully digital KYC tool that takes just 30 seconds of staff time to send out a check but does not compromise on accuracy thanks to EIDV technology and multi-bureau analysis
To show how Red Flag Alert will help your business protect yourself from bad debt we are making our company reports on five high turnover construction companies in financial distress and the Buckingham group freely available.
