Case study - watch your customers closely

Specialty Services is a small firm that provides consulting services to the mining sector.

Being a diligent operator, the business owner had taken the time to conduct thorough credit checks on its customers before taking them on board to ensure they were financially stable businesses. After the point of acquisition, Specialty Services worked hard to build trusting relationships with its clients. As a consequence, like many small firms, Specialty Services has a relatively small number of loyal customers which are responsible for a significant portion
of its revenue and are relied upon to provide a stable source of ongoing income for the business.

However Specialty Services was hit hard when one of its loyal, longterm customers experienced significant financial distress and was forced into insolvency without paying the monies they owed.

Specialty Services had little warning of the impending insolvency having experienced just one instance in which a bill was late before the company fell over. Given the solid relationship that had been established over many years, Specialty Services accepted the customer assurances that everything was fine and that they had simply misplaced the bill. But before they knew it the customer had entered insolvency and Specialty Services was out of pocket a significant amount of money.

The collapse of the customer was a significant blow. It detrimentally impacted Specialty Services' cash flow and nearly devastated the firm to the point where it was headed into irreversible financial distress. Specialty Services survived and it learnt some very important lessons:

  1. Spread your risk across a greater number of customers, that way if one goes bust its impact on your business will be much less damaging and it won't be the trigger that pushes you into financial stress.

  2. It is no longer enough to credit check your customers at the outset of a credit relationship and to assume that their situation won't change. Keep a close eye on the financial position of your customers, particularly if your business has a high level of dependency on a key group of clients for its ongoing sustainability.

D&B Alert Services makes ongoing monitoring of your customers easy - click here to learn more >>

Reduce your risk 

In today's fast-paced world things are constantly changing and chances are so are the circumstances facing your oldest and dearest customers. As Specialty Services found out, a company's situation can change virtually overnight - you don't want to find out too late that your best customer has fallen over. Specialty Services could have avoided some of its pain had it kept a closer eye on its customers using simple behavioural monitoring tools. By alerting you to changes in a customers profile as they occur behavioural monitoring allows you to pre-empt any possible problems and re-adjust your rules appropriately to avoid detrimental impacts on your business.

D&B Guide to Cash Flow and Credit Risk.bmp

Credit is at the heart of every successful small business.  Visit the credit section of dnbsmallbusiness for more information on managing your credit policies >>

 

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