To really understand which customers are in trouble, pull credit three times a year and look at trends that matter. There are obvious warning signs such as delinquent accounts with other dealers. A more subtle one might be a contractor whose borrowing amounts are steadily creeping up to historic highs.
To understand the true profitability, go beyond looking at gross profit dollars to factor in a customer’s share of your delivery, administrative, borrowing, inventory, and other costs. For example, it's important to reflect that someone regularly paying you slowly could be costing you 2% - 4% more than your average customer. That can often make the difference between a customer being profitable and unprofitable.
Do this analysis at least once a year and then chart where your customers are on a 2x2 risk vs profitability map.
So what does it mean to tailor your collections approach? To learn the right ways to collect for customers that fall into the Love, Escape, Address and Protect quadrants, read the full article.
About the Author
Scott is president and CEO of BlueTarp. He has spent the majority of his twenty year career in financial services helping businesses grow more rapidly through the effective use of credit.More Content by Scott Simpson