Having a large number of small customers presents both advantages and disadvantages. The advantages include wider spread of the risk of non-payment. The disadvantages include difficulties in assessing creditworthiness, and the fact that managing a buyer one tenth the size does not cost one tenth as much. Far from it! The issues of a large customer base relate to commercial success, ensuring ongoing business operations, the amount of time spent, and finally profit margin.
In our globalised economy, competition is the order of the day. Competition applies to goods and prices alike, and indeed also to terms of payment. You might as well focus sales efforts where the best potential is found – starting with those in a position to actually pay you! Credit insurance makes it possible to find out about a buyer’s financial health even before any kind of offer is made: it is pointless companies wasting their time on poor risks.
In B2B, even small buyers are granted payment terms. And these small buyers might just include some future major clients, so you need to be able to offer a fair and decent level of credit, and quickly. Responsiveness in commercial terms includes granting payment terms to buyers.
Ensuring business survival
When selling to smaller sized businesses, visibility over their actual creditworthiness is often poor. Sales representatives do not necessarily have reliable sources of information available, owing to the low density of contacts. The confidentiality option at the commercial court registry for the accounts of very small business in France up to €8m in turnover adds nothing to the transparency of financial statements.
If an overdue does arise, you need to be able to use a partner experienced in debt collection procedures, likely to recover the receivable, ideally without breaking commercial links. But there can be no going soft on overdue payments - they cost too much to become routine.
Collecting and analysing financial data on a large number of small buyers requires enthusiasm for the task... and a great deal of time. Will the most experienced person in this area be available as often as they are needed? What other aspects of their role will suffer as a result of the time spent on credit monitoring? A “decision-ready” outsourced solution would be far more practical.
Non-legal or legal debt collection, the briefing of a specialised company or a lawyer, the tracking of proceedings... here too, a proliferation of small clients multiplies the time spent, with no hope of any economies of scale. Outsourcing all these aspects is a good way to regain some productivity.
A large number of businesses deal with many regular small customers, especially in B2B situations. Their portfolios will often demonstrate the classic 80/20 rule, with 80% of their customers accounting for 20% of sales. Customer risk is spread more widely, but is ultimately much more expensive to manage internally, as each new credit facility, each reminder procedure, and each collection process results in significant fixed costs relative to the sum owed...
Having many small buyers is not particularly relaxing! Because they generate management costs that are proportionally higher than larger customers, a business can benefit from making use of credit insurance to protect its trade receivables, grant credit facilities and facilitate collection.