Through the use of some new monitoring tools and best practices, smart companies have an opportunity to better understand and navigate current conditions—to improve organization-wide management of customer risk and pinpoint potential profits in their existing customer base.
by Alex Coté
In the present economic downturn, business leaders are likely facing the biggest challenges of their careers. Corporate delinquencies, defaults, and bankruptcies are at all-time highs while tight credit and sales uncertainty are keeping staffing levels constrained. At the same time, competition is fierce. Through the use of some new monitoring tools and best practices, smart companies have an opportunity to better understand and navigate current conditions—to improve organization-wide management of customer risk and pinpoint potential profits in their existing customer base.
Tough times lead to business opportunity
While there are signs that the U.S. economy is “improving,” finding the bright spots of opportunity within an existing customer base is tricky. According to the U.S. Small Business Association, in 2009 over 660,900 companies simply closed their doors and another 60,837 went bankrupt. At the start of 2011, the reality for most companies is that the financial health of a majority of their customers is worse today than a few years ago.
With many banks unable or unwilling to lend, businesses are finding themselves in the position of waiting longer and longer to get paid as customers are slowing payments to manage their own limited capital. Given this cash flow and credit crunch, growing sales with existing customers is critical to making up the difference, but it also runs the risk of exacerbating the problem, as a more concentrated portfolio could still carry tomorrow’s slow payers, non-payers, and bankruptcies. Depressed yet?
Don’t be. One significant, yet often overlooked, benefit of the financial crisis is the new focus on customer and supplier risk across a business. This new “seat at the table” for the finance team has served to educate all facets of a business on the imperative for risk management as part of the sales and marketing equation. In a perfect world, the flow of goods throughout the supply chain moves freely from manufacturer to distributor to retail outlet or contractor to customer or job. Unfortunately, we don’t work in a perfect world. If at some point in the chain, a key supplier doesn’t get paid, that impacts their business and those with whom they do business. Cash flow crunches hit hard and those “hits” are felt up and down the supply chain.
The flow of money through the supply chain is as crucial as the flow of goods. When distributors have a better sense of what’s happening across their industry sector, the markets in which they compete, and in the economy as a whole, they can plan growth (or retraction) more effectively. Even better, when they have an accurate picture into how, when, and if customers are paying on time, distributors can target their most profitable customers, find new opportunities within a corporate family tree, reduce risk, and improve cash flow.