Grow your business and mitigate risk as the cost of doing business rises

The cocktail of high inflation, rapidly rising energy costs, supply chain disruptions and Brexit-related bureaucracy is putting many UK businesses under stress. But although the macro-economic climate is clearly challenging, Experian commercial credit scores data from December 2022 shows that around 25% of UK companies remain financially resilient and are likely to remain so even in the face of the rising costs of doing business over the coming months.

Although some sectors – notably energy-intensive industries – are particularly vulnerable to the economic trading conditions, the good news is that many are less so. In some cases, for example, companies have been able to pass the lion’s share of the rising cost burden onto their customers.

None the less, it is particularly important now that businesses are able to answer two key questions:

1. How can they identify high-risk customers across their portfolio, and take appropriate action to ensure existing revenue is at least maintained?
2. How can businesses continue to grow their portfolio and revenues by targeting new prospects who are likely to remain financially strong whilst the uncertain economic conditions persist?

In this blog, we look at three ways to answer these questions to minimise exposure on the one hand, and to identify and target more ‘good risk’ customers on the other.

1. Source and analyse risk and opportunity data from multiple trusted sources

One of the best places to start when it comes to assessing the risk present in your current portfolio, or assessing affordability for new prospects, is looking at commercial credit scores. In the current economic climate, this is perhaps not enough. Fortunately, a wide range of other data is also available to fully understand lending risk and opportunity.

For example, the sector that a company operates in currently has a huge bearing on its ability to withstand future economic pressures. Energy-intensive organisations such as hospitality and food providers, manufacturers, and construction companies, typically represent a higher risk. Other factors, such as the age of the company, its growth trajectory, its financial structure, the location of its sites, and details of its business owners, can also uncover both risks and opportunities.

What you can do: Armed with these kinds of multi-dimensional insights from trusted data sources, you can implement strategies to manage the risk across your existing customer portfolio:

• You can, for example offer payment ‘holidays’ for financially stressed customers or offer a new product or service more suitable for the current conditions.
• Simply communicating your understanding of the difficult market situation for the appropriate businesses to increase brand loyalty could be another tactic.
• You can also identify and target resilient customers – those successful, growing, profitable companies who are working in ‘high-risk’ sectors – to improve the health and profitability of your long-term portfolio.

2. Keep up with the latest changes to customers’ circumstances

One of the major challenges for businesses is that companies’ financial results are typically filed at Companies House on an annual basis. But as we know only too well, a lot can happen in a year. Outdated information about the economy and a company’s financial health – or otherwise – means that any help you could have offered to vulnerable customers in your portfolio may arrive too late.

To reduce the risks associated with outdated information, businesses need access to current, continually updated and accurate data sources – including information on defaults and the invoices that are paid after the agreed terms.

What you can do: Ideally, any significant changes related to a customer’s financial situation or behaviours should be communicated to you in real-time, via proactive alerts.

Increasing the visibility of a customer’s future growth potential as well as identifying nuggets of success among firms in sectors which might otherwise be dismissed as too risky can help accurately focus efforts on those businesses likely to succeed.

3. Harness data-driven insights to optimise your marketing communications

Multi-dimensional insights about existing customers can help you prepare effectively for any renewals and communications for new customer acquisition activities.

What you can do: You can use rich data sources and advanced analytics to find and target companies that are similar to your existing ideal customers – sometimes known as ‘lookalike’ companies. Once you find them, you can also overlay data to understand their buying cycles and business needs in more depth. With this information to hand, you can target them with the right products and offers at exactly the right time.

Not only that, but you can unlock a range of other insights that can help you win more new business. For example, you can uncover the ‘price sensitivity’ of prospects, their preferred communications channels, and the characteristics of the business owners. Critically, you can also forecast ‘propensity to buy’ and ‘predicted spend’ for both existing customers and target prospects – helping you to improve your financial forecasting and make better lending decisions.