Money value

How to keep the value of your customer base from shrinking

30th Nov 2018

The value of your customer base is crucial to the future of your company. But how do you prevent that value from being compromised? A decision model for customer acceptance is a tool which enables you to prevent a number of disastrous scenarios.

Your customer base is an invaluable source of information. In my previous blog I described how important it is to correctly read and interpret the data contained in your customer base to identify and adjust many disastrous future scenarios at an early stage. This helps you to prevent your company from ending up in turbulent waters.

One of the scenarios you want to avoid is that your sellers approach potential customers who are not in the best financial position and may not be able to meet their financial obligations. These types of customers do not add value to your customer base. You prefer to focus on prospects or customers who are creditworthy. A decision model for customer acceptance helps you with this.

Streamlining customer acceptance

A decision model is a business intelligence tool that easily and quickly combines various data sources and converts these into clear answers. The model takes into account predefined parameters when formulating these answers. It is an useful instrument for the customer acceptance process that answers the question whether it is wise to do business with certain (potential) customers and under what conditions. The decision model takes into account the agreements and data that a company finds important for customer acceptance.

Examples are the maximum percentage that an entrepreneur must annually write off from his turnover, the risk of non-payment, and the payment behaviour of a customer. If a (potential) customer meets the criteria of these aspects, he will proceed to the next checkpoint. Ultimately, the model can offer three possibilities: accepting, reject, or forward for further research.

In essence, the decision model serves as a gatekeeper. It prevents you from doing business with customers with a risky profile, for example, defaulters and companies with a dubious financial health.

Important aspects in a decision tree

You can include any parameter that is important for your company in a decision tree. However, there are a number of generic ones that are relevant to each company. It is, for example, essential to check whether a company is still active to be able to do successful business. You may also want to know what the financial health, the payment behaviour, and the medium-term survival chances are. Or whether the order value is in proportion to the credit limit of a customer. 

The decision model serves as a gatekeeper - it prevents you from doing business with customers with a risky profile, for example, defaulters and companies with a dubious financial health.

A decision model enables you to study whether a potential customer is a potential interesting partner, or actually poses a risk to your financial health. If the customer or prospect meets all the criteria you entered in the decision model, you can assume that this company will be of added value to your customer base. This customer will be able to meet his financial obligations.

Which strategy: defensive, balanced, or offensive?

One of the many advantages of a decision model is the possibility to choose a growth strategy. This is related to the risk you are prepared to take. You can choose for a defensive strategy, which means that you wish to keep the risk small and prefer to play it safe. In that case, there will be strict conditions for customers and prospects such as good payment behaviour and a healthy growth score.

The consequence of a defensive strategy is that the inflow of new customers will remain limited. But those who pass the selection are sure to provide income. There is a risk that you may miss out on potential customers due to an overly strict selection.

Of course, you can adjust the parameters of the decision model in such a manner that greater risks are taken. In that case, your selection will be less strict and more potential customers will pass it. The payment behaviour does not have to be excellent in that case. The growth score can also be a lower. This means that there is a risk that customers who will not be able to pay their invoices but you are willing to take this minor risk.

In short, you prevent the value of your customer base from being compromised with a decision model as a gatekeeper. After all, potential bad payers will be rejected.


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