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By Mark Halstead, Managing Director at insolvency score experts Red Flag Alert.

Overcome the fear factor and use data analytics from CVAs and company insolvencies to inform sales and marketing strategies that help protect and grow your business.

Given the current climate of economic uncertainty, it’s perhaps little surprise that Company Voluntary Administrations (CVAs) are hitting the headlines. In just the past week, shoe retailer Clarks and Caffè Nero have launched CVAs.

Reports of this nature will be met by business owners with either serious concern, if the failed companies contribute to their cashflow, or a sigh of relief if they don’t. In either instance, news of CVAs and insolvencies are still shrouded in doom and gloom and trepidation.

Failure, especially among large businesses which have been long established and once market leaders, sows doubt. It can quickly erode confidence in the market, raising questions about how hard it is to run a business and survive.

Business owners are right to question the failings of large companies. However, they shouldn’t be fearful and dwell too long on why a business has failed. All too often, headlines about CVAs will make for repeat reading. Putting the disruption of coronavirus to one side, there will often be reoccurring themes among struggling companies including outdated products and services, slowing sales, poor decision making and financial management.

Businesses can glean much more by considering what the failure means. With the right analytics, they can use CVAs to help protect their companies and grow them by optimising sales and marketing.

To achieve this, the analytics must scratch well below the surface and start by focusing on creditors affected by the CVA and where they rank in terms of having their debts paid. All too often, trade creditors like goods and services suppliers will fall to the end of the queue when administrators start considering repaying money owed by the insolvent business. If they do receive money, the trade creditors are likely to recover less than 10% of what they’re owed. It’s because of this that unsecured trade creditors to a company which has gone out of business can be up to three times more likely to face closure themselves.

This information can be used to run a financial health check on potential customers. A business can essentially validate whether a prospect is a viable sales target and revenue stream. If the financial health rating is low and shows that a prospect is at significant risk of failure, a business can choose to either avoid targeting the company or tailor its price and promotion accordingly. This helps maximise the potential returns and conversions from sales and marketing.

Further analysis of trade creditors impacted by a CVA can also help business owners to safeguard their own sales, pricing and marketing strategies against disruption to supply networks. A business going bump may lead to wider supply chain disruption down the line. This could mean product shortages and delays in stock availability. Marketing strategies and contingencies can be planned to avoid budget being wasted on promoting goods at risk of quickly being out of stock. Similarly, this analysis can also help protect a business against inflated supply chain costs. Other struggling businesses affected by non-payments from a CVA may attempt different quick fixes to addressing cashflow issues, including hiking prices. Sales strategies can be adjusted to mitigate the impact of spikes in wholesale prices and alternatives considered to avoid pricing customers out of the market.

Ultimately, a robust financial health check that’s underpinned by accurate, up to date information can help businesses to develop a sales strategy which avoids bad debt. Businesses can use the information to set credit terms that suitably manage risk. This could involve requesting part-payment up-front or staging payments throughout the provision of their goods and services, rather than waiting 30 or even 90 days for a debt to be settled.

While reporting of CVAs should act as a trigger for data analysis and business intelligence, businesses would be better placed to take an ongoing view of the financial stability of the companies they deal with. Whether it’s their suppliers or customers, it’s possible to build financial avatars for the companies they rely on. These avatars can update in real-time and constantly pinpoint how secure their lines of supply and credit really are. This can prove pivotal to cashflow and an effective means of utilising limited time and resources to drive growth.

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