The coronavirus pandemic has been a strange and testing time for the accounting profession. Firms are facing their own business challenges while at the same time working closely with clients that are facing significant problems.
Accountants are getting to grips with a wide range of government schemes and helping companies plan their way through this unique business environment. The pressure on firms has intensified as they get to grips with a wide range of problems their clients face—many of whom are in very difficult situations.
We’ve spoken to several accounting firms over the past few weeks that see this environment as an opportunity. They believe that by proving their value to clients during this difficult time they can cement those relationships further and enhance their reputation in the industry. Some of these firms are using data as a powerful tool to add value to clients; let me explain a couple of ways it can help.
Here’s one word to sum up the coronavirus pandemic: uncertainty. The unease is perpetuated by “government sources” giving their wildly differing views on lifting lockdown, and apocalyptic economic predictions from the IMF. Companies don’t know when or even if regular business will resume. For some hard-hit sectors in the leisure industry, normality looks years away.
Data can provide much-needed clarity in one key area: credit risk. Many businesses rely on other companies for revenue—manufacturing, construction and professional services are three sectors that generate revenue selling to commercial clients.
One way accountants can help clients manage risk is to enable them to evaluate the risk of bad debt. In 2019 there was £4.3 billion of bad debt in the UK. Our early estimates suggest this may double to over £8 billion in 2020 and keep increasing in 2021 and 2022.
If a business is an unpaid creditor when a client enters administration they are three times more likely to file for insolvency in the subsequent 12 months. Therefore, it’s vital that businesses can spot this risk early; if you can provide a solution that helps your clients review the financial health of key clients they will be well placed to avoid risk.
Once you provide the insight to your client that one of their customers is in financial distress, several actions can be taken. Credit terms can be reviewed, exposure can be reduced and conversations can start happening; the alternative is to hope that a letter from the insolvency practitioner doesn’t arrive to say a key client is in administration. Data helps you give your clients the ability to evaluate and manage risk effectively.
Global supply chains are coming under considerable strain and this is impacting many UK businesses. For companies committed to delivering complex projects (construction, manufacturing and even professional services) any issues in their own supply chain can cause delays, penalties and severe reputational or financial damage.
Supply chain challenges are hard to predict, and for a manufacturing company that uses parts from a wide range of suppliers or a construction firm relying on subcontractors the implications of supply chain disruption can be severe.
Data can provide insight on companies in the supply chain, analysing whether they’re financially secure and likely to survive or on the verge of failure. Once companies understand this supply chain risk they can start to make plans, getting out ahead of the problem.
By providing clients with this data an accountant can prompt them to start taking actions to manage risk. By identifying weak links in the supply chain companies can start conversations with those suppliers, consider alternative options and start to communicate with their clients that disruptions and delays are possible.
Many businesses are suffering a drop in revenue. For some, government aid is going to help them survive; others won’t be so lucky. However, as accountants you can go beyond financial planning and counting the cost of failure by helping your clients think about accessing new revenue streams.
As many businesses won’t survive this crisis, there will undoubtedly be opportunities to grow revenues and market share in the coming years. Companies should already be thinking about how to replace revenues and using any downtime they have to think about increasing sales.
Whether this growth comes from acquiring new customers or even buying rival businesses, data is a powerful tool to help focus on the right areas. Now is a good time to build new networks and develop intelligence on your clients of tomorrow.
As accountants, you can nudge clients towards this longer-term thinking. The available business intelligence is incredibly detailed, so companies can be specific when targeting new customers. Developing lists of new clients and even starting to engage with them will help businesses to shorten sales cycles as we come out of this crisis.
Red Flag Alert gives you a vital early warning system, allowing you to spot financial risk amongst clients. Our insolvency risk score allows you to protect your business by taking pre-emptive action and making your credit control processes proactive.
Red Flag Alert offers:
Learn more about how Red Flag Alert helps your credit control function protect your business from financial risk and comply with regulations, why not book a demo?