If the last few years have taught us anything, it's the importance of being prepared for anything. UK businesses have been hit by shock after shock. From the Covid pandemic to supply chain shortages, it can feel never-ending. Having a robust credit risk solution can be the key to protecting your business during difficult periods and reducing financial risk.
But how do you know which solution to go for? Not all credit reference agencies are the same, and each can provide different services. Explore a more comprehensive comparison of the different credit risk solutions here. Now, let’s dive into why a good credit risk solution is vital, and what to look out for.
Why is a good credit risk solution important?
Rising fraud
Fraud remains a persistent problem for your business in 2024. Last year, fraud in the UK more than doubled. Cases reported rose by 18%, and high-value cases of over £50 million grew by 60%. Fraudsters are harnessing the power of AI to remain hidden from your view, and basic credit checks are no longer enough to spot the danger.
It has been estimated that around 20% of the data on Companies House is false due to a proliferation of fake companies. The Vigilance tool by Company Watch allows you to find out about any fraudulent activity that may be taking place. It also lets you corroborate company data, which is incredibly useful when you are considering a company to work with. After all, you need to be able to trust the data to make sound business decisions.
High inflation & interest rates
Despite inflation falling to 2%, the Bank of England held interest rates at 5.25% for the seventh time. As prices continue to rise, the economy remains unstable for now. High interest rates are increasing financial risk and pushing businesses into insolvency.
In June, there were 2,361 insolvencies in the UK. That’s 16% higher than in May, and 17% higher from the previous year. These companies pose a serious risk to your business. You need a holistic credit risk solution to weed out companies in danger.
Supply chain risks
A recent report from the WEF suggests the economic outlook for the remainder of 2024 may worsen. Rising costs of material, energy, transportation and labour continue to threaten global supply chains. Continued global conflicts are disrupting trade routes and causing food and raw material shortages.
Find out more about the supply chain risks to look out for in 2024.
So how do you know if your credit risk solution has what it takes to help you protect your business in turbulent times? Let’s look at some factors that make a good credit risk solution.
1. Comprehensive scoring
Many credit risk solutions rely on machine learning to provide you with a credit score known as a ‘black box score.’ Computers can generate complex risk decisions and a company credit check in seconds, so it’s easy to see why many rely on this technology. But basing your risk decisions solely on machines can leave your business vulnerable. With black box scores, there is often no way of telling how the computer calculated the scores. Risks can slip through the cracks.
To that end, you need a credit risk solution that provides comprehensive and transparent credit scoring. At Company Watch, we’ve developed market-leading scoring tools to safeguard your business.
H-Score®
H-Score® is the most accurate tool on the market for predicting business failure and mitigating financial risk. 
The score is calculated by examining a company's financial position from all angles, including:
- Profit management
- Liquidity
- Asset funding
- Working capital management
We then compare the results to similar companies that have failed. We can then calculate the likelihood of failure in the next five years, providing a score between 0 and 100. Scores of 25 or less fall into our Warning Area, and are considered high risk to your business.
TextScore®
Our unique TextScore® tool cuts through corporate jargon to assess financial risk through an alternative lens. It uses the power of advanced machine learning to perform text and sentiment analysis of the words and phrases in a company’s financial reports, and allows you to perform a comprehensive company credit check.
If the pattern of words in a financial report is similar to that used by failed companies, the company in question could also be at risk. Similar to H-Score®, a score between 0-100 is given.
Combined Score
Our Combined Score sets our company credit checks above and beyond the competition. A company’s H-Score® and TextScore® are weighted together to create a Combined Score. This weighted combination is the most accurate predictor of company distress on the market.
2. Forecasting
In turbulent times, you need to understand how changing economic events might impact the companies you work with. Can your supply chain withstand continued volatility?
At Company Watch, we have a strong track record of getting our clients through tough times. We’ve created unique forecasting tools that allow you to stress test the financial health of the companies you work with and reduce financial risk.
Experiments
Our Experiments module is a game changer when it comes to forecasting risk. You can stress-test a supplier’s or customer’s financial health and run ‘what if’ scenarios using management accounts or forecasts. Experiments instantly updates a company's scores when you test the impact of certain scenarios on a business’s financial health, including:
- A drop in profits
- Increased debt servicing cost
- A write-down of asset values
Experiments is just one of our industry leading forecasting tools that can elevate you above the competition.
3. Fraud detection and prevention
Fraud is currently costing the UK economy around £219 billion every year. Our open Companies House register has attracted criminals from around the world to take advantage. In 2022, it was reported that around 155,000 of the companies registered were fake.
A good credit risk solution should be able to shield you from the threat of these fraudulent companies. Our latest tool does just that.
Vigilance™
Vigilance™ is our groundbreaking early warning system that alerts you to potentially fraudulent activity. It uses hundreds of thousands of data points from various public sources to corroborate company information. It then flags any irregularities or suspicious behaviour so you can investigate further. Vigilance™ helps you:
- Make better lending decisions
- Eliminate potential fraud earlier
- Identify new business opportunities
Protect your business with Company Watch
Protecting your business from financial risk can feel daunting in today's turbulent climate. But it doesn’t have to be. Working with a great financial risk analytics company can give you the peace of mind to make data driven business decisions with confidence.
At Company Watch, we work closely with industry leaders and our clients to create products and tools you won’t find elsewhere. We can help future proof your business and protect it from financial risk.
Get in touch today for a chat, or to arrange a free trial of our platform.
