credit percentage

The post-Brexit marketplace is a highly competitive arena. A decreasing number of customers and increased promiscuity from buyers have wholesalers competing for a slice of an ever-decreasing pie.

In order to achieve growth, many wholesalers get drawn into competing on price. This, inevitably, is unsustainable.

Others focus on improving their value proposition in order to create a ‘stickier’ brand or offer, thereby increasing customer loyalty. There is no doubt about it – stickiness can change the game. It can transform business from a transaction-based model to a more lasting, mutually beneficial one in which companies improve their own revenues and help to improve their customers’ competitiveness.

What is the problem?

The problem with stickiness is that it can be hard to create. For example, a primary objective for wholesalers is to sell more to their existing customers. However, doing so without decreasing prices and subsequent margins is difficult unless your proposition is sticky. Now, sticky can be delivered by good, old-fashioned service. It can be achieved through training, NPD and range developments that increase choice. 

We know we’re not inventing gravity here and that most companies have at least paid lip service to some of these approaches, but that is often the extent of it. The truth is, creating sustainable stickiness needs organisations to see the world through customers’ eyes. Otherwise, unlike gravity, stickiness just won’t happen.

The ‘superstar theory’

Typically, the Pareto principle applies in the wholesale market: 80% of revenue and profit generally comes from the top 20% of customers. This, for many wholesalers, means that most sales resource is focused on the latter band of customers.

This has become known as the ‘superstar theory’. However, there is an increasing school of thought that this theory is flawed. By focusing the majority of effort on the top 20%, the fragmented ‘tail’ of customers often gets ignored. Given that they tend not to be promiscuous and, in most instances, generate higher levels of percentage margin, should they not be a key target when wholesalers seek to develop their business?

Part of the issue with this fragmented tail of customers is that they are often credit-constrained. This means that the volume and value of goods supplied by a wholesaler is constrained to the credit limit that the wholesaler offers. Often, the limit and duration of credit terms are insufficient to cover the trading requirements of the customer. As a consequence, you find customers juggling credit limits between suppliers in order to satisfy their needs.

So, if we look at this through the eyes of your customer, what do they want? Ideally, the provision of a credit facility that enables them to purchase what they need from a supplier and a credit period that enables them to maximise their working capital. But more and longer credit means higher risk, right? Not necessarily.

Offering real-time credit

Capital On Tap’s real-time credit monitoring platform can offer more credit to your existing customers without increasing risk. We can do this because our proprietary software enables us to refresh the credit assessments of customers every time they order. As a consequence, we have more information about the trading patterns and performance of their businesses, which allows us to provide more credit to nearly 80% of our clients’ customers.

We have found that when provided with more credit and more flexible payment terms, seven out of 10 customers buy more, with increases in order size of up to 20%.

Capital On Tap can help you create a sticky value proposition from your trading terms. We enable you to cultivate long-lasting, mutually beneficial customer relationships where you help to improve the liquidity and positive cash flow in your customers’ businesses. They grow, you sell more, you grow.

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