Suppliers are constantly faced with two tasks: acquiring new paying accounts and satisfying the needs of their repeat customers.
The two are related to one another. When dealing with new accounts, suppliers should focus on developing a lasting relationship with their customers.
There are 3 steps suppliers take en route to converting new accounts into satisfied repeat customers.
- Select Credible Customers
- KYC (Know Your Customer)
- Structure the payment plan
Select Credible Customers
Before accepting business from a new customer, suppliers should run high level credit checks to verify the clients are indeed who they claim to be.
However, for small suppliers with limited funds, obtaining the necessary data from venerable credit analysis firms like Dun & Bradstreet (D&B) may be out of their budget. As a result, some small suppliers opt for cheaper crowdsourced alternatives, or perform the credit checks themselves.
Both of these methods have significant drawbacks. Crowdsourced information is far less comprehensive and may not always be accurate; while performing internal credit checks are very time consuming and come with no guarantees.
This lack of affordable and reliable credit check options often results in suppliers taking a more cautious route by only extending credit to businesses they know well. However, in doing so, suppliers limit their growth and missing out on potentially profitable opportunities.
Know Your Customer
When suppliers open new accounts they should, before the first transaction, understand exactly who they are doing business with.
Initially, the supplier-customer relationship might simply involve an exchange of basic contact details and account information. Rather than blindly accepting this information, suppliers need their prospective customers to undergo a validation process—specifically their bank statements and payment histories must be investigated. Though this process, companies who had trouble meeting payment deadlines are red flagged from the start and suppliers can structure payment plans to deal with these riskier customers.
Most if not all suppliers will have customer accounts that have trouble making timely payments. As such, a continuous and ongoing monitoring process is the best way to flag and catch issues early.
Structuring appropriate payment plans
Payment plans need to be designed with both the supplier’s and the customer’s needs in mind. For risky accounts there are several ways to structure payment plans including partial cash on delivery, incentivized discounts for early payment, or harsh penalties for late payments. However, at the end of the day, choosing the appropriate structure will depend on the level of risk the supplier is willing to take.
Payment collection and invoicing can also be a huge headache. Suppliers must decide whether to do this in-house and bear all of the frustrations that come with billing and tracking down late payments, or spend more money on outsourcing.
Converting new accounts into satisfied repeat customers is an expensive, time consuming process. There is no one-size-fits-all solution and it is crucial for suppliers to sit down and perform a sincere cost-benefit analysis before making decisions on what to do in-house and what to outsource.
We’ve addressed these issues — and more — in a short ebook we wrote on how suppliers can optimize their collections process.
To learn more about customer acquisition and how to collect from small businesses, download the following e-book here.