Craig Evans, CEO
As we enter the last quarter of 2023, I have been reflecting on what has been a tumultuous year. Continuing geopolitical disturbance and a turbulent economy set the scene. I’ve witnessed rising levels of bad debt and insolvencies, in June UK government debt reached over 100% of the gross national income. While it looks likely that we will narrowly avoid a recession, projected growth in 2024 is lower than expected.
If you’re thinking that the outlook seems bleak, don't worry, it’s not all doom and gloom. If the last few years have taught us anything, it’s that it pays to be prepared. Spotting threats on the horizon early is key to helping you weather the storm.
As Company Watch CEO, I’ve been keeping a close eye on current events to make sure I spot any dangers you might be facing in the coming months. That way, we can be ready to help you avoid crises and limit damages. I’ve outlined my top 3 market fears that your company needs to be vigilant of, and how we can help you through our financial risk solutions.
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1. The looming threat of bad debt and insolvencies
You’ll have noticed in recent months that increasing costs and consecutive market shocks are pushing businesses to the brink. The latest government stats show that compulsory liquidations were up 81% in July compared to the same period in 2022.
I think that much of this can be explained by unprecedented borrowing during the pandemic. Previously healthy companies forced to rack up debt to survive became ‘zombie companies,’ barely managing to keep their heads above water. Add on 14 consecutive interest rate hikes and debt repayment has become impossible for many. With 1.5 million SMEs struggling with bad debt, you need to be on the lookout for signs of trouble.
It’s not enough to use a standard credit check to look into a company’s finances and immediate customers. You need to dig deeper to expose weaknesses further along the supply chain. While the businesses you deal with might seem stable, what about the business their customers work with? Or the suppliers their suppliers use? Examining the bigger picture is vital to ensure your money is secure.
At Company Watch, we use the latest advanced algorithms and machine learning to monitor over five million businesses. That's how we've been able to accurately predict nearly 90% of UK public insolvencies since 1998. Our tools will help you uncover weaknesses before they become issues. For example, our TextScore® tool analyses the text within a company’s annual reports for indicators of risk, often predicting corporate distress in advance and protecting you from loss.
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2. Fraudulent activity in many forms
With fraud on the rise and cyber criminals becoming increasingly sophisticated, you need to be constantly vigilant. £7 billion of public money lost through fraud since the start of the pandemic is directly related to the misappropriation of government COVID schemes. I expect we will see a steady stream of prosecutions soon, as the government attempts to claw back some of this money. This means that while a company may look clean on the surface, a prosecution may be incoming. I know you’ll be well aware of how important it is to avoid doing business with a fraudulent company!
As well as fraudulent behaviour surrounding COVID schemes, there are several other causes of the UK’s rising fraud problem:
- In Q2 2023, a spike in fraudulent activity saw cash stolen rise to nearly £3.5 billion in the UK.
- As AI becomes more advanced, so do cybercriminals. In the 12 months between April 2022 and April 2023, 26% of medium businesses and 37% of large businesses experienced cybercrime.
- Internal data breaches are on the increase, through a combination of human error and intentional insider fraud.
- Supply chain theft has become a real issue for many UK businesses. For example, in 2022 there were 5,000 cases of freight crime reported in the UK with £66 million worth of goods stolen.
We’ve got a range of tools to help you uncover fraudulent behaviour, including our Enhanced Director Search. It allows you to trace company directors with hidden histories of previous insolvencies and hidden ownership connections.
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3. Big data causing big problems
As you’ll be aware, many sectors in the UK are facing several unique challenges when it comes to data. The volume of unstructured data makes it difficult for you to pull out useful, actionable information. There’s also the problem of over a million UK companies having not filed accounts since 2021. So any data you do pull from these businesses will be peak pandemic, and unlikely to be representative of typical performance. This leaves you flying blind when it comes to lending decisions.
I’ve started to see an over-reliance on AI to try to manage and process data. The use of machine learning tools in the financial sector is set to triple by 2025. 72% of financial service providers are currently using or developing the technology. The problem this causes is that it is difficult for you to maintain control over your lending decisions. As AI portfolios grow, losing sight of why applications are being approved and accepted is a real possibility.
The good news is, we’re here to help with data overload.
SearCHeD and TextScore® are just two of our tools that can help. They can be combined to pick out relevant data from company records. TextScore® uses natural language processing (machine learning) to predict the probability of corporate distress. SearCHeD allows you to scan the entire Companies House database and find keywords you are looking for in seconds. These tools allow you to harness machine learning without compromising on oversight.
There’s so much more we can do to help you future-proof your business. Arrange a free trial today, and discover how we can help you minimise these market risks.
