Confident Cashflow

Who doesn’t love the prospect of a new customer?

It’s easy to get carried away with the excitement of adding a new client to your books and the potential for increased revenue; however, are all prospects created equal?

 The simple answer is no.

Choosing the right customers for your business is essential. A small investment in determining the creditworthiness of your prospective customer at the outset could save you a significant amount of money and headaches down the line. Here’s why.

What Makes a Good Customer?

When we think about what makes a good customer, we often approach this question from a sales and marketing perspective. Common criteria include:

1. Target Market Fit: Are the prospects within your target market, or do they match your customer persona? Ensuring that a customer is a good fit for your market helps in creating long-term relationships and repeat business.
2. Budget And Timeframe: Is their timeframe and budget flexible and realistic? Customers with unrealistic budgets and deadlines can lead to stress and subpar work, which can affect your business reputation.
3. Focus on Outcomes: Are they focused on outcomes rather than features? Customers who understand the value of the outcome rather than getting bogged down by features are often easier to work with.
4. Alignment with Purpose, Vision, And Values: Does the client align with your Purpose, Vision, and Values? Working with customers who share similar values and visions can lead to more harmonious and fruitful relationships.

These are all excellent selection criteria, but there should be two more:

Financial Health And Payment Behaviour

1. Ability to Pay: Do they have the means to pay? It’s important to assess a prospective customer’s financial health. Customers who lack the financial capacity to pay can quickly become a liability rather than the reliable source of income you’d hoped for.
2. Payment Habits: Are they good payers, i.e., do they pay on time and according to terms? Even customers with the financial capacity to pay can be problematic if they have poor payment habits.

Factors Affecting Payment Habits

You might think paying on time should be a given if a customer can pay; sadly, in many cases, it isn’t.

Here are a few payment habits that can have a devastating impact on your cash flow:

• Poor Administration: Customers with inefficient (or no) administrative processes can delay payments unintentionally.
• Lengthy Payment Processes: Some customers have long-winded approval processes that can delay payments significantly.
• Deliberate Delays: There are customers who operate on a policy of ‘don’t pay until you get the final demand,’ deliberately stretching payment terms to improve their cash flow at your expense.

Assessing Customer Creditworthiness

So, how do you determine your prospective customer’s creditworthiness? Here are a few strategies to consider:

1. Credit Checks: Conduct credit checks using reputable credit reporting agencies. This will provide a snapshot of the customer’s financial health and payment history.
2. References: Ask for and check references from other suppliers or service providers. This can give you insight into their payment behaviour and reliability.
3. Financial Statements: If possible, review the customer’s financial statements. This can help you understand their financial stability and ability to pay.
4. Monitoring: Continuously monitor your customers’ financial health and payment behaviour. Early detection of potential payment issues can help you take proactive steps to mitigate risks.

Choosing the Right Customers

Choosing the right customers is not just about increasing sales; it’s about ensuring your business’s long-term health and sustainability.

By taking the time to assess prospective customers’ creditworthiness, you can avoid potential pitfalls and build a stable, reliable client base.

Remember, a good customer is not just one who buys from you but one who pays on time.

Invest in the right customers, and your business will thank you for it.

Contact us if you want to include credit checks as part of your assessment process.