If you knew in advance that a potential customer wasn’t going to pay, would you still target that customer? Would you still take on their business? For many companies, prospecting has taken a back seat since the beginning of the recession, while more focus has been given to customer retention. With businesses beginning to look further ahead, however, many are bringing their attention back to new customer acquisitions.
But the business landscape has changed. It is a far riskier environment now than it has ever been in the past, and a shot gun approach to marketing could backfire and lead to the business’s own demise. B2B marketing is no longer just about simply acquiring new customers or even acquiring profitable customers. It has evolved into acquiring creditworthy customers that will continue to pay.
The impact of insolvencies
B2B marketers face the challenge of operating on smaller marketing budgets in an environment where not only is the number of business insolvencies increasing, but there is a greater number of businesses barely surviving. The probability of targeting and acquiring a business customer that is failing is high, and failing customers can impact heavily on your own business.
Experian’s latest insolvency research reveals that the number of businesses going bust increased by 27.3 per cent during quarter two (April, May and June), in comparison to the same period last year. The rate of business insolvencies peaked at the end of 2008 and although it has begun to slowly decline, the level of insolvencies since the beginning of the year is still, nonetheless, far higher than in previous years. Furthermore, businesses are paying later and later and this is a key indicator that they are struggling. In July, the average business was paying its bills 24.2 days after its agreed payment terms.
Protection against bad debt
The current threat of exposure to bad debt is a very real one and B2B marketers need to take responsibility for the quality of the leads they generate. Businesses face a reputational as well as financial risk when they target failing businesses. As a result, a marriage of marketing and credit risk data has become a vital move forward and the sooner marketers embrace this concept, the sooner they will start seeing the benefits of such a union.
While intelligent marketing information is still key in highlighting those prospects most likely to buy, credit risk information is just as important to highlight those that are most likely to pay. The financial losses and bad debt that can result from marketing to failing businesses could well create a knock-on effect that causes their own business to fail.
Removing the risk from your database
Through the use of marketing data that has been pre-screened against credit risk data, unprofitable, high-risk businesses – including those that are likely to fail in the coming year – can be removed from an organisation’s databases and marketing prospect lists. This in turn reduces the business’s marketing costs as high risk companies are not targeted with marketing material or other marketing activity. Pre-screening also eliminates the danger of making unnecessary and expensive sales visits to high-risk prospects, as well as the potential embarrassment of rejecting a business customer following a lengthy sales negotiation due to poor creditworthiness.
The union does not end there. Credit risk information would enable businesses to make informed and proactive decisions, not just at the outset of the relationship but throughout the relationship. They can be forewarned of cash flow difficulties, late payment issues and possible failure, and take necessary action to avoid the possibility of bearing the brunt of another company’s failure. Furthermore, the process can lead to greater customer loyalty, lower bad debt rates, up-sell opportunities and greater account profitability.
In the past, a lack of awareness of credit issues, an inability to interpret credit data and preoccupation with other direct marketing issues, such as data quality, have been the reasons that marketers have neglected to use credit risk data. However, complexity and lack of awareness can no longer be valid excuses if it means that B2B marketers are wasting resources by targeting the increasing pool of businesses that are likely to fail in the near future. They are exposing their employers to the risk of bad debts.
