Having an accurate prediction of cash flow allows businesses to effectively plan and execute key initiatives for the upcoming months. Making those accurate predictions depends hugely on an understanding of your customers’ buying habits and the trends within them.
Knowledge is King
Knowledge is king, which is why sales and marketing, procurement and supply management, even developmental departments are investing in big data in order to make their execution more successful. The B2B credit industry is booming with data and solutions to fit every business’s needs, but the truth is no one company has all of the data, and most are actually missing a key piece. In order to make up for the inevitable lack of information, you have to innovate and take on a new way of thinking. Buying behavior and purchase trends have proven to be the leading indicators of future credit risk, and can be incorporated into products and services for a more proactive approach to risk reduction.
B2B credit is not known for being high-tech or overly innovative, so it’s no surprise that many companies have been slow to let go of “traditional”, manual processes. Many companies are so accustomed to their outdated products and evergreen Dun & Bradstreet contracts that they haven’t even taken the time to see what else is out there. Not only are there less expensive providers, but there is better information on the market that thousands of companies have adopted and benefitted from.
Buying behavior and purchase trends provide businesses with relevant information on which industry a particular company is spending the most money with, and how they are paying those providers. This creates a more specific indication as to how much that company may spend with yours, and how quickly they’ll pay you back. Eric Votaw, Sr. Manager of Corporate Credit & Cash Application at FreightQuote.com shares “Cortera give us relevant data, not just aggregate information. How a particular shipper is paying the electric company is not as important to me as how this company is paying its freight bills. Cortera reports provide this valuable information.”
In addition to having this information available within one-off business credit reports, there is a solution called Cortera Pulse which does exactly what the name would suggest – monitors the credit risk and overall financial health of companies within your AR portfolio. Any change in purchase behavior such as a significant decrease within your industry creates an alert and proactively notifies you of the risk. “There are times when Pulse has saved us thousands of dollars by making us aware of these risks that would have otherwise gone unnoticed,” says Nina Flurer, Regional Credit Manager at H&E Equipment Services. If a company is consistently spending less and less with businesses in your industry, they’re likely struggling to stay afloat and may soon be unable to make payments. This automated AR monitoring system keeps you alert and ahead of any potential risks that may impact cash flow.
Evaluating Credit-Worthiness of New and Existing Customers
Purchase trends come into play when evaluating the credit-worthiness of new and existing customers, as well. Many businesses are still familiar with pulling a Dun & Bradstreet report, which will give you the candidate’s payment history and score. What it won’t give you is information on what that candidate has purchased over the past year to three years and how those trends are changing over time. In other words, a Dun & Bradstreet report will only provide you with trailing indications of credit risk; nothing that is truly predictive.
The data found within purchase trends and buying behavior will not only allow you to more accurately determine a new company’s credit worthiness, but it will also allow you to unlock the potential already lying within your active portfolio. There may be companies spending more with your competitors than they are with you, which is a perfect up-sell opportunity. There may also be companies whose credit limits should be tightened, based on how their purchase amounts have recently declined. Without taking this information into your credit decisions, you’re limiting yourself and your company, ultimately subtracting from your own bottom line.
Minimizing credit risk requires the adoption of new ideas and information. Purchase trends provide businesses across various industries with more visibility and actionable insights to reduce credit risk. If you take a few minutes to see the data in action for your particular business, we will beat Dun & Bradstreet’s best price by 30% or more.