Choosing the right company to forge a business relationship with is a critical process not to be taken lightly. Getting it wrong can have serious consequences. From late paying customers eating into your cashflow to poor suppliers affecting the fulfilment of orders etc. Prior checks to ensure that you’re dealing with the right company will keep you in control.
What is customer acceptance?
Business acceptance is the due diligence process for screening whether you ought to be doing business with a company or not. Some may argue that a simple, yet effective compant credit report is the key to the decision making process. Rightly so, it’s certainly a great starting point.
By undertaking a company credit report, you’ll be able to make a judgement call based on well-informed data. Most company credit reports will flag up any areas of concern for you to pay close attention to, when deciding on whether to take on the company on your records.
Why is customer acceptance so important?
From a customer perspective, it’s critical to choose the right customers to avoid the pitfalls and hassle of late payments. Late payments can put a strain on resources; particularly the Credit Control department attempting to recover outstanding debts. The key is to analyse payment behaviour and make appropriate decisions on whether you choose to accept the customer or not.
With bad debt costing Belgian companies significant amount of monies, get off to the start and avoid falling victim by ensuring the right business acceptance checks are in place.
1. The company can stay profitable.
Suppose that a customer fails to pay an invoice amounting to 2,000 euros. At a 5% margin, this means it has to generate an extra 40,000 euros in revenue to compensate for this loss. This increases as your margin decreases. If the margin is only 2%, you need as much as 100,000 euros in extra sales; assuming that nothing else goes wrong along the process.
Bad debt may therefore get you in a spot of bother if taken lightly. After all, if you are not receiving enough money from your customers, you need to find other resources to pay your suppliers. Financing that will in turn cost money. This is why you should deal with customers who are actually worth doing business with.
2. The salesperson will also benefit.
The salesperson will pocket a higher commission if they spent less time having to deal with ‘bad payees' who don’t pay on time. Avoiding late payees means less time on administration as far as chasing outstanding debts and a lot more time on generating new business!
Which data support your acceptance process?
A company’s annual financial statements is a key source of information if you want to do screen a company’s financial health. The disadvantage is that they’re often outdated due to the nature of the filing process. It is just a snapshot, adorned with the necessary accounting cosmetics. Furthermore, many companies based on their status' aren’t necessarily required to file their statements. Instead, a company credit report from Graydon acts as a one stop shop for making business acceptance decisions. Data from a variety of sources are combined into a single detailed credit report.
Depending on the type of report you choose (enhanced, compact or custom), you will obtain information about:
- The credit advice indicating whether or not your business partner is able to pay you in the short term.
- The payment behaviour and payment score indicating whether or not the relevant company complies with its payment obligations. Some companies may show a weak credit rating but be correct payers, and vice versa.
- The management. Are the executives also active in other companies? Have they been involved in a bankruptcy in the past?
- The official data such as the correct company number, the company’s registered office and trading name, the legal form, VAT liability, etc.
- Historical data. Was the firm located elsewhere in the past? Did it have a different name? Has the authorised share capital changed over time?
- The founders and share division.
- The company’s activities based on different sources (KBO, VAT, Social Security records).
- Subsidiaries and branches.
- The financial position, including the capital structure, the liquidity, profitability and solvency position.
- The annual financial statements on the past three years.
- An in-depth financial analysis.
Acceptance process foreign companies
Relating to the availability of data, this is different in each country. In Belgium, we are quite spoiled in this respect. However, Graydon can rely on its worldwide network of partners with excellent knowledge of the local market. They will provide an accurate impression of the credit rating of your international customer.
If you are looking for details about a European company, you will probably be fine using the online international network. No less than 29 European countries are connected to this, offering their information 24/7 online. The reports - complete, compact or credit advice - all have the same look and feel. This means that each partner translates the locally available information into uniform scores and ratios, greatly simplifying international comparisons of companies.
What traps should I avoid?
When interpreting credit reports, it requires an element of analysis and judgement and cannot be taken on face value.
- High supplier payables does not mean in all cases that the company is unable or unwilling to pay. The customer may have negotiated excellent payment terms with its suppliers due to reliability.
- A benchmark with the sector may put statistics that may at first seem weak in a very different light.
- The credit advice is not always completely indicative of payment behaviour. Also check payment behaviour in previous quarters. How did it evolve? Perhaps there is a positive development.
Graydon has a team of specialists ready to assist you in interpreting all national and international data and the eventual acceptance process.
Automating customer acceptance
If you have a large portfolio of customers, checking and interpreting information on every single customer is very time-consuming. Build your own unique decision models by integrating Graydon’s business intelligence into your systems and automating your acceptance process. Rather than the reliance on company credit reports, you’ll create a fully automated and robust customer acceptance platform. This will save time, mitigate human error and reduce the effects of late payment to a minimum.
Circumstances and situations change within companies. A company that’s in a healthy financial position today may be so tomorrow. Therefore, it’s critical to ensure that you’re kept in the know of any developments which may affect your surrounding business environment.
Monitoring alerts are triggered based on certain criteria which you define as important to your business. Alerts are sent out straight into your email inbox as soon as they happen, so you can be assured that you’ll be notified on an important event and constantly be in the know. Remember, it’s not only negative events which you can define and be alerted on. Rather, leverage the monitoring functionality to possibly create business opportunities e.g. a change in a positive credit rating for a customer may result in extending better credit terms to gain more revenue from increased orders on credit etc.
Find out more about monitoring.