How Customer Relationship Management Drives Revenue Growth and Reduces Your DSO

You may have heard phrases like “cash is king,” but when it comes to customer relationship management, I’d suggest a new saying: communication is king. But just like we’ve already mentioned, good customer relationship management is about more than sending friendly reminders when a customer needs to pay you. You need to foster a genuine relationship.

Like a lot of elements of customer relationship management, good communication is win-win. Your customer feels heard and respected by you, but you also get a glimpse into the day-to-day of the business you work with. That means you’re much less likely to be caught off-guard by things like restructuring or supply chain issues that could mean you’ll be paid late.

Let’s say you have a long-term supplier relationship with a business. They’ve always paid you back in good time, but in the last couple of months, you’ve noticed those payments are taking longer to get to you. If you aren’t in regular contact with the business, you could send a reminder email to them that may or may not be responded to. But if you have a good relationship with the business and you speak regularly, you would already know that recent turnover in their finance department has led to a backlog of payment requests. There’s no reason to sound any alarm – you'll be paid as soon as possible and you know they’re looking for a replacement so this doesn’t continue. 

But if there’s no apparent reason as to why your payment is late, a good relationship with your customer means they’ll be more open to speaking about payment issues. It’s like I said: good customer communication is win-win.  

So, you know that speaking with your customers regularly means it’s easier to nudge them about payment when you need to, but when do you actually need to do that? Well, that’s another important part of customer relationship management. As the saying goes, you need to know when to hold them and when to fold them – with customer relationship management, you need to know when to nudge gently and when more pressure is required. 

First, understand your customer inside and out. Is this late payment part of a bigger problem from within the company, or a one-off issue? Take a look at their business credit report, specifically their Days Beyond Terms (DBT). If you notice that their DBT has been steadily increasing, or fluctuating dramatically, over the last 6-12 months, it could be a sign that the company has cash flow problems. You may want to think about whether working with this company long-term is the best choice for your business, especially if they’re at a higher risk of bankruptcy. 

Then, analyze the company’s payment patterns with your business, specifically. If a business that’s always paid you back in good time is suddenly late, a gentle nudge may be all they need. But if they’re consistently late payers, it may be time to escalate things.

Don’t go sounding the alarms just yet -- “crisis” doesn’t always mean emergency. But it’s important that your business is ready to expect the unexpected. And that includes things like late or missed payments. 

You should have a clear plan for when payments become overdue. Here’s what I would recommend:

• Identify at-risk companies: Your communication and regular check-ins with customers should mean that you have a good understanding of which of your customers are most at-risk of paying you late. You can keep a closer eye on those customers and speak with them more often, to make sure that you don’t miss any important changes.
• Segment your accounts: Segmenting your A/R portfolio by risk, for example, helps your team organize their tasks to make sure they’re closely watching the customers more likely to pay late, encounter problems, or even declare bankruptcy. 
• Use automation: Our research has found that only 36% of companies run credit checks on existing customers. Not having that information at your fingertips means you won’t know if something has changed with your customers that could cause them to pay you late. Set up automated alerts to let you know if something changes on a customer’s business credit report. 
• Develop clear procedures: Your team should be trained on your company’s policies around late payments. Some businesses are able to withstand it if customers pay them back a month or more late, while others rely on prompt payment more strongly. Your team should know when they need to nudge – and what they should say when they do it. If an account needs to be escalated, your team should know who needs to be put in contact with the business.