It’s no secret that offering attractive payment terms may help boost sales. However, the decision to extend favorable credit can be challenging. CFOs and accounting teams need to know what they don’t know when assessing customer creditworthiness.
“You know how your customers are paying you, but you don’t know how they’re paying somebody else,” says Lee Fahrenz, Sales Vice President at Allianz Trade in North America.
When CFOs have access to accurate, thorough, and easily accessible information on their customers and prospects, they can unlock faster credit approvals — allowing their credit team to spend more of their energy on bringing money in the door and reducing days sales outstanding (DSO).
Incorporating robust customer information and insurance protections into CFOs credit control procedures helps businesses bring in new customers, grow their existing customer relationships, and generate more sales and revenue.
“The more information that you have, and the better informed you are, the more flexible you can be when it comes to extending terms and credit limits to win business,” says Fahrenz.
Going Beyond Being ‘Good’ or ‘Lucky’ When Extending Customer Credit
For CFOs across industries, effective credit control — which refers to the business process of extending credit to customers — is essential to doing business. Companies must work with customers who accept their conditions and can pay on agreed-upon terms.
Offering attractive payment terms is essential to staying competitive, especially for companies that compete against larger peers. Still, many CFOs struggle to balance their desire to grow aggressively with their need to limit how much non-payment, late payment, and bad debt risk they take on.
“We often say companies are either good or lucky when it comes to credit control and credit management,” says Fahrenz. “If they’re good, they’re probably being too conservative and missing out on sales opportunities. Or, they’re just lucky because they haven’t had any bad debt losses yet. And often they’re both because they’re taking a ‘best guess’ approach, and that’s a really risky proposition.”
Finance teams’ ‘best guess’ approaches might rely on traditional information sources such as credit applications, Dun & Bradstreet D-U-N-S numbers, and customer-supplied trade and bank references. These information sources typically only provide companies with a limited picture of customers’ or prospects’ financial health.
More robust information, which companies can access when working with a trade credit insurance provider, helps finance teams proactively identify customers with cash flow problems.
Making More Data-Informed, Risk-Smart Credit Decisions
For example, an insurer like Allianz Trade has insight into whether a given company is slow-paying any businesses that currently have policies covering their relationships with that company.
Because of Allianz Trade’s global size and reach, “we may have 10 or 15 other suppliers we’re insuring with that same client,” says Fahrenz. “If a claim comes in or we’re otherwise notified that a policyholder of ours is being slow paid by them, we can let our other policyholders know that this client is going to have cash flow issues, and they may not be able to pay soon.”
With those insights, policy-holding companies and finance leaders can make more empowered decisions about which customers to work with and under what kinds of terms.
For example, prospective customers may want more credit than businesses and may be comfortable extending it based on their credit application and references. With access to insights from the database of a global insurer, however, the company might reevaluate how much risk (and opportunity) is at stake.
“If you can take a recurring customer from a $100,000 credit limit to $300,000 credit limit, because you know that Allianz Trade is insuring them for even higher limits with other businesses, you can unlock a lot of top line revenue,” says Fahrenz. “That pays for an insurance policy many times over, and it’s a scenario that can occur with many, many customers.”
Conclusion: Unlocking the Confidence to Offer Winning Terms
When CFOs embed insights on the 83 million businesses monitored by Allianz Trade into their sales and credit control systems and processes, they can make informed, revenue-driving decisions quickly (typically within 24 hours, if not immediately).
Coupling those insights with the protections of trade credit insurance — which helps offset covered losses due to bad debt— can help CFOs gain more confidence, extending the terms to help them compete with peers of all sizes.
“Nobody really wants to offer extended terms, because there’s greater risk there, but trade credit insurance can take a lot of that risk off the table,” says Fahrenz. “With great credit control, backed by insurance, you can win more business offering the most aggressive terms possible.”
Allianz Trade, the world leader in trade credit insurance, has 62,000+ clients worldwide. To learn how Allianz Trade can help you protect your cash flow and grow confidently, go to https://www.allianz-trade.com/en_US.html.