From a cashflow perspective, there’s little value in having a well-known or profitable customer on your books if they fail to meet payment deadlines. So, how can owner managers recognise the warning signs when building their client portfolio and should they consider incentivising prompt payment?
In the current climate, it’s important to ensure larger customer bases translate into a healthy cashflow as they can represent a large proportion of a business’ turnover. In order to accomplish this, owner managers need to implement checks on potential customers credentials when following new business opportunities, with a focus on retaining the lines of communication.
By keeping an open mind, developing a wide and varied customer base will help to keep cash flowing by ensuring that owner managers are not overly dependent on just one or two customers.
Signs of a good customer
Transparency in supplier communication is often a clear sign of a good customer. While every business has its ups and downs, a good customer will keep you well-informed when they’re going through tough times, so you can plan accordingly. For example, letting you know that they won’t be able to pay at the 30-day mark, rather than waiting for you to chase them, allows you to build extra time into your cashflow cycle.
Offering repeated discounts for prompt payments is often an effective way of incentivising businesses to be good customers. However, one-off payments could be a more relevant method to ensure late payments don’t result in an automatic reduction. It is important to consider the most appropriate method for the business. Strong customer relationships, along with open and regular communication, is the key to effective credit management. Preparing for those difficult conversations and ensuring the clear communication of your boundaries assists in improving your cash position. Using these techniques owner managers can nurture their portfolio of good customers for future benefit.