Become a Business that Adjusts According to Risk

Businesses rely on customers being able to pay their money, when it’s due. So how can you understand all the risks, and make the changes to strengthen your business?

We rely on our customers to keep our business running and, ultimately, to feed the kids, the dog, the travel pot and the electricity bill. But we rarely know the details of their financial situation – or when we do, we know it could change at any time.

That’s why a business owner should check the credit state of a potential customer – including their likelihood to go insolvent in the future, and how fast they pay their invoices to other suppliers.

Why does it matter? It enables any business to make an assessment of the likelihood of non-payment and how this may impact your cash flow, which can be key in smaller operations. Armed with this information, there are a number of ways to seamlessly adjust your terms to temper the risk:

Request a deposit or cash on delivery

If you can see that a customer often takes a few months to settle their bills, make it your policy to request an upfront deposit that will ensure sure you have a portion of the funds secured before you start work. If you’re delivering stock, request payment on delivery so you can eliminate your risk of being left out of pocket.

Implement tighter timeframes

If you can see that a potential customer is high risk – because, for example, they are asking for credit terms from someone else – you can respond accordingly. “You don’t have to refuse their business, but you can protect yourself,” says Damien Stevens, Equifax’s Senior Product Manager for Commercial Risk.

“Rather than agreeing to a 30-day payment term, for example, you might bring it down to 7 days. Just last week a customer was telling how they’ve started implementing very tight terms now that they’ve identified their high-risk customers. It means they can chase payment a lot sooner. It’s all part of a solid business strategy.”

Adjust your collection system

It’s true that you shouldn’t risk being too lenient on customers who may not have the funds to pay you, but you don’t want to aggressively chase a good customer who’s simply been held up either. Having the information to tailor your approach helps you collect your money and protect your relationships.

“We call this contextual collection,” Damien says. “The information allows you to tightly manage high-risk customers without adopting the same approach for your valuable low-risk clients – remembering that these may change throughout the year. If someone reliable is just chasing payment approval up the ranks, they won’t appreciate the same heavy-handed approach.”

Understand your customer, whatever the risk

Even if your customer has no red flags on their credit report, their payment history can be valuable to your bottom line. “Often in small businesses, some customers hold more of the power than you do,” says Damien. “Just think of the small food producer selling to a big grocery score. The grocery store will dictate how fast they pay their invoices but you can manage your bills and cash flow accordingly.”

It’s all about staying one step ahead, so your cash flow never suffers.

What do do next?

Reduce your risk and put your business in the know with accurate credit reports from SwiftCheck.

Purchase a report now

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