It makes good business sense to keep an eye on the economy. Those ups and downs making headlines could hit your bottom line. But if the companies you deal with fail to pay you or supply key goods or services, your business will suffer even more.

By John Lord, sales director, D&B

According to recent research, nearly one in five companies never runs customer credit checks. This is like driving with your eyes squeezed shut. You won’t see risks coming until the collision.

Among companies that do take an interest, this same research says one-third only credit check once: when they first start doing business with a customer. That leaves a huge number of businesses turning a blind eye to how their customers are faring over time.

It’s like playing Russian roulette: any customer, or key supplier, has the potential to bring you down, but you have no idea which ones are actually most dangerous.

When it comes to customers, good credit assessment starts from the very beginning, when you’re still prospecting for business. Pre-screen companies for credit worthiness at this stage and you can close deals with confidence, safe knowing that you eliminated higher risk companies before you spent time and energy targeting them.

Also your sales process becomes more efficient since your sales teams only spend their time chasing prospects that you want as a customer.

But enrolling creditworthy customers isn’t the end of matters, so far as your risk exposure is concerned. Just because a business is creditworthy today doesn’t mean that it will be a safe bet tomorrow.

Regular monitoring is what’s required for businesses to gain the most value from credit assessment. Increasingly, companies are automating their systems so that management gets regular, speedy alerts about changes in their customers’ commercial fitness – as soon as they happen.

Ongoing monitoring can deliver a total view of your customer ledgers, over time. You can feed what you see about your overall risk exposure into the day-to-day decisions you take about individual accounts.

Moderate risk in a large account is a greater threat to cash flow than higher risk in a much smaller account. But add up all the small value/high risk accounts and your commercial position could well be weaker than you imagined.

Seeing how much risk you actually face could even lead you to change course, and pursue a different commercial strategy. Or if you stay the course you’ve already set, at least you’ll have your radar on, detecting risks early so you can steer clear.

What works at the customer’s end of the value chain works as well with regard to your key suppliers. Monitor their commercial fitness and you can avoid surprises that can imperil your own business.

In August 2006, the iconic makers of model airplanes Airfix went into receivership for the second time in its history. That time round, the failure was triggered when its principal manufacturer went into administration in July, causing a crippling blockage in supplies and rendering Airfix itself insolvent.

Put simply, the better attention businesses pay to the commercial fitness of their customers and suppliers, the more easily they can protect themselves.

The interdependencies connecting companies, their suppliers and customers mean that commercial weaknesses anywhere in the system can have a devastating effect, crippling or killing companies that don’t manage to retain control in turbulent times.

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By John Lord  on   Jul 07,2008

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Keywords

late payment    credit assessments    customers    suppliers   

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