Long live the days where business credit reports would tell you everything you need to know about the companies you work with. Traditional reporting methods focus on the past, paying little attention to what the present has to say about the future. The truth is that there’s nothing more telling about a company’s priorities than where it is currently spending its money. Sure, a business may be paying its bills on time. But if they’re not making any purchases, how can they be growing?
A business’s credit worthiness should never be based solely on its payment history. Just as consumers’ credit worthiness changes and evolves over time, a business’ credit worthiness is constantly adapting to its current financial environment. While business credit reports are great sources of information on past behavior, monitoring a business’s accounts receivables is the key to proactively mitigating B2B credit risk. A/R monitoring protects your business in 3 major ways:
1. Keeps You Abreast of Key Changes that Could Affect Your Customer’s Ability to Pay You
There’s nothing worse than the close of a business or bankruptcy filing by a company that owes you money – especially when their credit report portrayed them as healthy. Predictive analytics have proven that a business will continue to pay its bills for as long as possible without showing any warning signs of the actual financial distress, and that the real red flags are hidden in purchase behavior data. Behavioral changes such as a drop in spend, closing of a location or tax liens and other civil judgments are predictive by nature. If a business is showing any of these warning signs, pay close attention – it could mean that your customer will soon be unable to pay you. These credit risks often go unnoticed, unless A/R monitoring is in place, helping you stay on top of behavioral changes and overall risk. By identifying the right clues, you can take action to protect your business financially before it becomes too late.
2. Makes You Aware of How Your Customers are Paying Other Businesses Similar to Yours
There’s no better insight into how a company should be paying you (vs. how they actually are) than a numerical comparison to your competitors. A/R monitoring tells you what a company buys and how it pays other businesses like yours, including the average DBT and sum of balances. Are some of your customers paying you more slowly than their other providers? A/R monitoring widens the view into how your customers pay other companies that are similar to yours, enabling you to identify your most collectible or late accounts, and collect faster. Faster collection leads to faster cash flow, and ultimately increased profitability.
3. Provides Portfolio Summaries and Segmented Buckets for Side-by-Side Comparison
It’s important to be aware of where your customers rank against portfolio and industry averages. Maybe some customers have credit limits that are set too high, while others have limits that are set too low. By comparing your current portfolio to industry-wide data, as well as balances with your competitors, you can identify up-sell opportunities. Revenue growth insights and risk segmentation will help you determine where these adjustments need to be made.
A/R monitoring may be a new concept, but it shouldn’t be ignored. By remaining ahead of potential risk, your business remains safe from any significant financial loss.
To learn more about A/R monitoring and find out how it can help protect your business, click here.