Businesses are constantly changing. Owners sell companies, managers are promoted, and employees are constantly switching companies trying to climb the corporate ladder or switch careers. This can have a drastic effect on the culture and workplace environment of the companies you do business with. Here are some reasons it’s important to know who you are doing business with
Credit terms are management based
As we have written in the past, part of the credit evaluation process should be examining the relationships you have with your customer. What do you know about their management? What kind of company values and culture do they have? These are all important factors when determining credit terms. If these were to change due to new personnel, management, or ownership, then maybe you should reevaluate your credit terms as well.
Know who is in charge
While you may or may not deal directly with upper management at your customer’s company, all managers have a style in which they run a company. Some prefer a safer, more cautious approach, while others are risk takers. If you understand the person behind the deals, you have a greater likelihood of making the right one. Also in many industries, it is not uncommon for managers to bounce between companies and understanding their management style can help you know what to expect from that company moving forward. We recommend as part of your ongoing review of credit limits that you ask your customer about any senior management or ownership changes in the last year.
Diagnosing late Payments
Knowing your customers is an important factor in determining their reason for late payments. Two different customers could both be late for the same amount of time and use the same excuse, but your relationship with each will determine how you handle each situation. On a similar note, your customer will be far more willing to work with you and be upfront if you have a strong working relationship with them.
It easy to get lost in the numbers and forget that business deals are also between people. Knowing who you are dealing with is not only good for making good deals but it can also help you grow and avoid making costly mistakes.