6 tips for tight customer management

Client portfolio management refers to the administrative and financial process, which ensures that you receive your payment on time. It contributes to a healthy working capital. Map out and closely monitor the payment behaviour of your customers A few practical tips.

1.     Screen the payment behaviour of your customer

Investigate how creditworthy your counterparty is. Your company’s focus lies on growth, but naturally, it has to happen safely. New (international) customers might pose a risk of default of payment. How often do you screen the financial health of existing customers? Can you really assess their level of solvability?

Suppose, your company has an annual turnover of 1.2 million euros, with a margin of 5 percent. What is the impact of an unpaid 12,000 euro invoice – 1 percent of your turnover?

In order to compensate for that loss, you require no less than 240,000 euros of extra turnover. Putting it differently, that unpaid invoice wipes out more than two months of hard work… Yet another way to look at it: that single invoice lowers your margin by a full percentage point, from 5 percent to 4 percent.

Defaulters can be very detrimental for your company. Only a few uncollectible accounts can quickly lead to a situation jeopardizing your entire profit margin and ,impacting your financial capacity to cover costs and wages.    

2.     Partner up with a credit insurer

It is not a luxury to let an expert screen the financial soundness and payment habits of your customer and cover the risks by a reliable partner. Euler Hermes is a well-established credit insurer. If your customer knows, a credit insurer defends your interests, that is  often enough to honour his financial commitments and to pay on time. Your customer is all too well aware that poor payment habits or non-payment brings him discredit and undermines his future business relationships.

3.     Don´t hoard your invoices

Send invoices out on a regular basis, with partial amounts for long-running projects. Make sure that you send out the invoices right away after delivery of goods or services, so that the agreed payment period begins to run immediately. In this way, you avoid any surprises from your customer and you become aware of potential payment difficulties ahead of time.

4.     Monitor unpaid invoices

An oversight? A dodgy financial condition? A disputed amount? Dissatisfied with the delivered services or products? Delays or non-payments can have very different causes. By paying close attention and promptly contacting the customer, you are both monitoring the unpaid invoices and managing your customer relationship. There are handy digital tools that help you conduct a well-oiled customer policy.

5.     Be clear and transparent

Make sure your invoices are readily understandable and ask for explicit approval of the general terms and conditions. Clearly define the payment and credit conditions, the latest possible payment date and the period to protest. Indicate how much the late-payment interest is if the payment is not on time.

6.     Outsource your customer relations management

As a company, you aim for growth and your focus must be on your core business. Client portfolio management absorbs too much of your time and energy? Outsource it to an expert. One option is factoring. You transfer account receivables to a specialised institution (factor) based on an agreement between the two parties. In this way, you optimally mobilise the money that is tied up in customer receivables.

Keep your working capital under control

Smart customer management is just one way to keep your working capital healthy. Effective supplier management, efficient inventory management and intelligent credit management also ensure that your need for working capital remains under control (read: stay as low as possible).

Download the whitepaper on working capital and find out all about it.