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.
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 OpportunityWhile 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.
Better Information as a Performance DriverHow can businesses navigate this tricky environment to protect themselves, yet also grow?
The answer lies locked in what has historically been information that is often scattered across a company’s separate business functions. Every department keeps tabs on customers in a different way. Sales needs to make sure they understand as much as possible about their customers to make sure they stay in touch with their needs. Marketing looks for patterns in customer behavior to tap new opportunities. Finance and operations are always on the lookout for payment or financial risk in the customer base. Unfortunately, at the end of the day, these separate departments tend to become silos, rarely sharing their findings with others in the company who may find revelations in that information.
At the core of every business are customers that consistently ensure a steady flow of orders. Intuitively, better information about these customers leads to more opportunities and better business decisions. From initial prospecting in sales and marketing, to financial decisions required to invoice the new customer on credit terms, companies need accurate and timely information to make informed business decisions—especially with the thin margins found in the wholesale distribution space.
Monitoring Your Customer Base is KeyBelow are a few practical steps that any company can follow to maximize sales performance and optimize cash flow, while not taking on an overly risky group of customers.
Monitor All of Your Customers: This may sound expensive or time consuming, but spotting one new sales opportunity or catching a single potential non-payer early will easily offset whatever process or service you put in place. It is best to start with those customers that have been active in the last 12 months and track asmall set of metrics worth keeping an eye on. For most businesses it makes sense to watch a core group of items that can impact a customer’s ability to buy more of your products in the future such as customer news, public records (liens, judgments, and bankruptcies), and even their business credit score. A balance of both risk and opportunity metrics will benefit the entire organization. Start simple and measure your results.
Monitor your customers through social & free web channels: The business world has rapidly embraced much of the consumer “Social Web,” with LinkedIn leading the charge. But don’t overlook Twitter and Facebook – many businesses have invested in these outlets as well. The combination of all three social networks give you the ability to not only know what your customers are saying publicly, but also know what your customers’ customers are saying. Tools like TweetDeck, HootSuite, Seesmic, and CoTweet help you follow companies, track keywords, and manage the flow of information across the major social networks. All offer free versions and some offer premium offerings. You’ll find a broader range of features for the paid versions.
Obviously you can’t be in front of your computer all the time, so alerts are a great way to stay up to date. For public companies there is a wealth of free information from Google, Yahoo!, MarketWatch, and others – which enable you to build a portfolio of public companies and trigger alerts for free. Another free service called SocialMention enables you to both set alerts and search in real-time across major social networks and blogs.
Besides the aforementioned pros, keep in mind some of the cons of free monitoring tools:
- A fair amount of “noise”: Company-generated information (e.g. product announcements and press releases) originates from ‘biased’ sources. Sifting through it to find revealing data is both difficult and time consuming.
- The alert volume can be overwhelming (and then ignored): It can be difficult to manage all of your customers (Google Alerts on every customer would overwhelm your email in-box).
- Little private company information: Free tools are great for large, public companies, but furnish little if anything on smaller, privately held companies (the large majority of U.S. businesses).
Premium Information: Paid alerting services that do the work for you. While Google and Yahoo! find general information on private companies from news sources, the Web, and blogs, you’ll need a paid service for more in-depth information. Pricing of paid services depends on the information being monitored. Companies like Cortera offer a daily customer alerting service focusing on payment risk, regional, and industry news, and growth opportunities. Again, cons to keep in mind might include:
- Cost: The cost to use a service can vary depending on the provider (although many are more affordable than in the past).
- Potential need for multiple services: Depending on the types of information you want to monitor, you may need to purchase more than one service
- Adoption: If you go through the trouble of purchasing a service, it must be assigned to a responsible leader or team for follow-up analysis and action.
Publish a Daily Report to the TeamCompanies are busy and staffs are doing more with less. Consolidating the alerts into a single report that can be reviewed each morning will help keep your team on the same page and can eliminate costly write-offs or missed opportunities. Alerts that are triggered “as it happens” intuitively make sense, but in reality you’ll often be away from your desk. It’s easy to forget to come back to the alert you received 10 minutes into an hour-long meeting. Stick with a 15-minute review of a single document each morning, rather than trying to piece together all the alerts you received throughout the prior day.
You may also want to assign an "owner" to follow up on each alert. It is just as important to be aware of a potential problem as it is to follow up. Again, there is power in having a clear process. An alert triggered by news about significant layoffs at a key customer could be a clue as to future payment problems.
In addition, it’s important to step back every month and review the customer portfolio overall. What are your top credit balance accounts? Your top prospects? Your riskiest accounts? The idea is to present a proactive approach to management to show you are on top of your customer portfolio and not likely to be surprised.
The Bottom LineIn business: Information is knowledge and knowledge is power.
In the world before web-based tools and social networks that enable business people to connect and share information with one another, that power was limited to those companies that had both the funds and resources for intelligence gathering. Through today’s new web-driven monitoring tools, highly valuable information and insights are now available from the convenience of your office. By using these tools and following these best practices for customer monitoring, you’ll reap benefits almost immediately, with more to come over time.
Alex Coté is a VP at Cortera and author of the Net 30 blog (blog.cortera.com). Cortera helps companies monitor all their customers for meaningful changes in their business and alerts them once a day to potential opportunity and risk so they can take immediate action.