It is easy to underestimate the value of data you have on customers. But in fact, it is the best way of building up a solid profile of your customers that can have a major impact on credit management.
As explained in our recent blog on data, information should be gathered from a combination of internal and external data sources. These sources can provide with details on a wide range of characteristics regarding your customers. For instance, it will be possible to find out company size, industry, location, payment history and creditworthiness, among other things.
What is segmentation?
Having access to customer characteristics makes it possible to organise their portfolios into homogenous groups. This means you can group clients together based on certain key characteristics. For example, you may find that certain customers all pay on a set date every month. You can, therefore, segment these customers accordingly and ensure that they are only chased if payment hasn’t been received after that date.
By segmenting customers, it is possible to define the best strategy to achieve faster payments for each specific group. It also allows you to determine which customers you need to pay more attention to. It also helps reduce the risk of default and achieve better results across your portfolios.
How to segment customers
Once you have obtained the right information, you should segment your customer portfolio into homogenous groups. It is without a doubt a big task but will pay off in the long run. It is important to remember that your customers and their behaviour can change, meaning these groups may need to be updated over time.
Manual segmentation is possible for businesses with only a handful of customers. However, this becomes much more difficult and time-consuming when dealing with a large and growing customer base.
For most organisations, manually monitoring and tracking behaviour is simply too labour intensive and very prone to errors. Fortunately, it is possible to use tools to monitor the changes in behaviour within customer portfolios and adapt collection strategies to best suit the situation. This is carried out automatically on a daily basis, thereby keeping risk to a minimum and ensuring the right action is taken, for the right customer, at the right time.
There are several ways you can segment customers into groups dependent on information and criteria:
- Internal information (payment behaviour history)
- External information (credit information)
- Risk level (based on history, industry, region)
Once you have defined the groups, you should adjust your dunning strategy and workflows to the specific customer segment.
Why should you segment customers?
Through the segmentation and profiling of customers, it is possible to gain greater insight into who you are dealing with. This will allow you to make business decisions accordingly. For example, if a customer regularly challenges invoices, the decision could be made to refuse them credit until the balance has been settled. After all, failing to recognise patterns such as this can have a significant impact on cash flow.
It can also help you determine which customers need more efforts and resources assigned to them. But conversely, by noticing patterns in when and how they pay, it can highlight which customers don’t need to be chased for payment. This saves both time and resource.
To further improve the efficiency and effectiveness of your credit management processes, you should match a collector (of the right level) to the action that is required for the customer that needs to be contacted. To determine whether to assign the task to a junior or senior collector, you can use a combination of the invoice sum and customer profile.
While manual segmentation can take some time, using credit management tools will ensure it is a much quicker process. Ultimately, segmenting customers will help your business’ risk analysis. It will also increase cash flow, collaboration across different business departments and growth.