Our Credit Limits Have Changed

Alongside our recent scorecard product update, we’re pleased to announce yet more positive changes for Red Flag Alert users. Read on to find out how these exciting new developments will improve your Red Flag Alert experience. 

Red Flag Alert has always been the industry leader in predicting business insolvency in the UK. These exciting new developments to our algorithm make us even more accurate than before. Therefore, we can guarantee even greater levels of reduced risk exposure to our customers.

This ensures that users of Red Flag Alert are utilising the full levels of data and knowledge available when extending credit to any business operating in the UK. We sit down with Bethany Ashberry, Data Scientist at Red Flag Alert, to discuss the latest product changes and updates.

What does this mean for me as a Red Flag Alert customer?  

From May 2023, with the introduction of our new scorecard, we are changing and updating our credit limits as a follow on from our new health rating product updates.

 “This means that the number of companies with a designated credit limit will increase, and the credit limits that we do have are going to be more accurate. You are likely to see some changes,” says Bethany.

As business users, after the launch of our scorecard update, you may have noticed fluctuations in your Portfolio Monitoring tool, and changes to your own rating too. Don’t panic – this is to make the algorithm more accurate overall and give you a better snapshot of insolvency and growth. It’s a positive, long-term development that will allow you access to improved data predictions.

What is a Red Flag Alert credit limit? 

Red Flag Alert uses our proprietary algorithm that accurately predicts insolvency and measures a company’s current and historic financial situation. Using a unique combination of performance indicators to assess and predict advanced business financial statistics, we can recommend how much credit should be extended to future and current debtors, and when to be more cautious.

“In simple terms, a Red Flag Alert credit limit is the figure we give as an advisory total for the amount someone can lend to you,” says Beth. “We base it off how much money you can realistically pay back. For example, if we say you can have a limit of £5000, our algorithm states that this is the amount you can comfortably repay when your assets and affordability are taken into consideration.”  

How do you calculate Red Flag Alert credit limits?

“We factor multiple things into calculating your credit limit,” says Beth. “We typically use a combination of financial indicators, along with information on trade creditors.

These include determining your ability to pay and calculating your affordability, amongst other things. Our multifaceted approach substantially increases the accuracy of our credit limits for businesses in the UK and beyond.”

This is to provide a snapshot of your financial situation for anyone thinking about offering a line of credit to you. As there are so many companies of various different sizes and financial situations, determining creditworthiness is simply not enough. Applying a credit limit to buyers is essential information that can protect you from bad debt, and ensure you do not undertake too much borrowing.   

Why has my credit limit changed?

With the accuracy increase through our new scorecard, our confidence in the scoring model means we can accurately predict what is the best credit score and lending limit for a business. This may have adjusted your credit limit. 

Beth says; “Your credit limit will have changed because our new model is more thorough and has more stages than the previous algorithm. We’ve also changed our credit limit ceiling, so for large organisations with a lot of assets, the credit limit cap has now risen to provide a more accurate picture.

Secondly, it may have changed due to an edit to your SIC codes. This change in sector will provide varying amounts of money that you can borrow and could cause a credit limit modification. Finally, if your financial situation has become worse, this will also mean that we no longer recommend that businesses extend as much credit to you as they have in the past, which is why your credit limit recommendation figure has been reduced on the new system.”  

How does this help me avoid bad debt?

Using our database of real-time UK company information, undertaking a thorough evaluation of data, alongside the everchanging economic conditions, will help us predict company stability and potential insolvency. This allows us to display credit limits and predictions with our scoring metric and gives Red Flag Alert customers the benefit of avoiding getting involved in bad debt.

“These new and more accurate credit limits will really help you avoid bad debt by telling you exactly how much to lend to a business, and realistically what they can pay back. If you have a potential supplier or customer, you can check their credit limit and ensure that you don’t lend them over our suggested amount,” says Beth.

Can I revert to my previous rating and limit?

Unfortunately, that is not possible as everything is now running on our new scoring algorithm. Scores and ratings are now calculated using our new scorecard. You can find out more about our scoring methodology by reading the Scorecard product guide, or by getting in touch with your Red Flag Alert account manager.

“Even if you think your rating looks worse, it’s statically more accurate. Of course, the benefit of this is that everyone you’re dealing with will also have a more accurate score too, increasing predictability and allowing for better business decisions for every Red Flag Alert customer," said Beth. 

Protect your business from insolvency with Red Flag Alert

Firms can be put at serious risk when their customers or suppliers become insolvent, particularly if they have been extended products or services on credit. 

Red Flag Alert helps you protect your business from this. We are the UK’s only independent credit referencing agency and we hold data on every UK company, as well as businesses in countries around the world. Our business insolvency risk scores indicate the likelihood that your customers or suppliers will become insolvent. 

We collect more information from a greater number of reliable sources than any of our competitors—meaning we spot risk factors that they don’t. Our database is updated in real-time so that you can base your decisions on accurate, up-to-date information.

To see some of the powerful insights our data provides, get a free trial of the platform today.