Guernsey Consulting | Customer Vetting and Analysis

This week’s edition of The Bottom Line we will be discussing why it is important to properly analyze new customers when establishing them in your system to do business with. Regardless of relationship with the business or owners, you still need to make sure you protect your own business when it comes to risk.

If you are a small business owner reading this and thinking you don’t have the resources, team, etc. to make sure this is done for your business, contact me. This is something I specialize in and can help you with. I can give you the tools and skills to make the right decision for your business. I am open to doing this over a call where we walk through details or I am open to setting up an ongoing process where any new customers coming in for you is something I help you with. Ready when you are — [email protected] 

The Importance of Credit Analysis

1. Risk Mitigation 🛡️

Extending credit without a thorough analysis of a customer's creditworthiness is akin to navigating uncharted waters without a compass. It exposes your business to unnecessary risk. By evaluating a potential customer's credit history, payment behavior, and financial stability, you can identify potential risks and mitigate them proactively. This not only protects your bottom line but also fosters a healthier financial ecosystem for your business. For small businesses, being able to mitigate credit risk is crucial since many will not have a cash reserve to fall back on if there are issues.

2. Systematic Data Collection 📊

The foundation of effective credit analysis lies in systematic data collection. Establishing a robust process to gather pertinent information about the potential customer is paramount. This includes details such as their financial statements, credit history, payment behavior, and any outstanding obligations. Implementing a systematic approach ensures that you have a comprehensive dataset to make informed credit decisions, leaving no room for oversights.

Here’s a few MAIN items you need to be collecting…

1. Credit Application - this should be detailed to get all of the customer’s basic information, at least 3 trade references, 1 banking reference, public financial information if applicable, billing details, and signatures. I also like to list a line for collecting a W9 which can be stored for the life of the time you work with the customer and can help with address verifications.

2. Sales Information - this is information your sales group needs to submit along with all other details when they want you to vet a potential new customer. This needs to detail the work you’ll be doing, level of business expected, relationship, costs, etc. It also will allow you to go directly to sales to ask any specifics on how soon things need to get rolling, how confident they are in the potential customers, etc.

3. Financials - your credit application should detail this as a requirement and they need to include financials for review, provide/sign an NDA if needed to release them, or provide the web location if it’s public data on their company website. I try to obtain financials anytime I can get them as this is very telling on how the business is performing.

4. Company’s Info Sheet - this normally includes much of the above (sometimes) that they’ll attach vs completing your own credit application. I suggest getting your credit app signed, always. If they just attach this type of document, I would still ask that your own credit application be signed.

3. Timely Decision-Making ⏰

Time is of the essence in the world of credit analysis. A delay in processing information can disrupt the sales process and lead to missed opportunities. Implementing a streamlined system that allows for the timely collection and analysis of customer data is crucial. This ensures that credit decisions are made promptly, allowing the sales process to continue seamlessly and without unnecessary interruptions.

My rule of thumb for my team and clients, if you are extending a lower amount of credit potentially for work you may not need to collect as much data so turn around time for that analysis should be 1 business day.

For those customers that you could do $250k or higher with you should set precedence that you’ll need 1-3 business days to analyze. This gives you time to pull credit reports like DNB, Experian or CreditSafe, contact all trade references and obtain responses, inquire with the banking reference that things are in good standing, and then analyze those financial statements after you obtain them. Sounds easy right? It is!

4. Sales Process Efficiency 🚀

Efficiency in credit analysis directly translates to efficiency in the sales process. A well-structured credit analysis system enables your sales team to operate smoothly. They can confidently pursue new business opportunities, knowing that credit decisions will be made promptly. This not only enhances the customer experience but also contributes to the overall growth and sustainability of your business. Develop your relationships with your sales group as much as you can. Many sales professionals are in the dark on the WHY when it comes to credit analysis. Take the time to explain the reasoning behind vetting customers so they realize the risk you are preventing for your company.

I highly suggest developing a standardized document that you share within your company on credit expectations and what is expected to be collected PRIOR to establishing terms/limit. That way they always provide the same detail each time and you can get them in a systematic process making it easier for them as they bring new business in.

Collect the right data, establish a baseline for your team so they understand why evaluating customers is important, provide your sales team the right documents to share with potential customers, and then get to work analyzing and establishing new customers quickly and with confidence that risk is being eliminated.

If you are unsure of how your application and other standard documents should be formatted, I can help. I’ve developed these for clients in the past to provide to their customer base. I’m ready to help you do the same thing. This is a fairly easy and fast process to develop for you. Setup a time this week to work with Guernsey Consulting and I’d estimate only needing 2-3 hours to complete this for you! Fast and cost effective service that will give you and your team the confidence they need.

Make it a great week and continue vetting your customers!

— Brad

Contact Guernsey Consulting LLC for Expert Credit Analysis Support

In the dynamic landscape of credit analysis, Guernsey Consulting LLC stands ready to be your strategic ally. I specialize in tailoring credit analysis solutions for businesses, offering personalized guidance to optimize your credit decision-making process. Don’t overlook this area of your business!

For expert assistance or to explore our comprehensive services, reach out to me at [email protected] or visit www.guernseyconsulting.com.

Let us be your partner in navigating the intricate terrain of credit analysis and ensuring the financial health of your business! 🌐💼

You’ve got the process in place to analyze new customers and now are beginning to bill for the services you provide….learn how to make sure you’re collecting that hard earned cash ON TIME.

In this video, we do dive into some of the details you need to be exploring when it comes to extending customers credit. Ready for a personalized touch for this process within your business? Contact me today.

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