Although it may sound cold and callous, ranking the client portfolio is an important process that assists the sales and collections departments in serving clients. Client ranking allows the company to put its clients into categories based on a few simple criteria.
A company needs to assign four easy categories, say with letters A through D, to clearly illustrate the separation for employees. These rankings are used to determine which policies apply to that client. Should the client be extended credit? What credit term is right for the client? Does the client qualify for a quantity price break?
Let’s think of client ranking as assigning a type of car to each client:
- Mercedes-Benz SL Roadster for Category A
- Jeep Grand Cherokee for Category B
- Toyota Camry for Category C
- Ford Pinto for Category D
Now let’s look at a description of each category in the Client Ranking and talk about the respective policies for each group.
The A clients are just that: Your top and most significant clients, better known as the A-listers. These clients regularly purchase a high volume of products and make their payments on time. The profit margin percentage for this group is the highest. Sometimes, they pay in advance or put a deposit on the order. Your A clients are not easily replaced and should be treated as the top priority by employees. These people and their companies should be treated like a Mercedes-Benz SL Roadster: maintain it, treat it well, and be careful where you park it.
Your B clients are those in good standing. These clients are the Jeep Grand Cherokees: great cars that can go anywhere. They could move up to A clients if they continue using your firm over time or begin ordering lots of high margin items, becoming more profitable for the firm. Right now, the client may be new or purchasing a lower volume of products.
Some B clients were previously in your A category, but moved down due to circumstances beyond their control. It’s not personal; it’s business. Keep an eye on them and maintain the relationship, but you can’t always cut them a break if they can’t swim on their own. They may be B clients because they are flirting with a competitor, or simply because their market conditions have declined. The truth is, you cannot always tell the reason for the change. Therefore, think of the B ranking as giving your company the Break, or the Benefit of the doubt. There’s still room for these B accounts to move back into the A ranking, but they might require some maintenance or re-call services for which your company is not picking up the tab. Ironically, the B group makes up the largest and most profitable ranking. Just like a Jeep, everyone likes them and they can take you anywhere.
Your C clients buy little, seldom, and only during sales, or they usually pay late. Think of these clients as a Toyota Camry: practical, affordable, and around for a long time. They take their time placing orders; however, when they order, you will still earn their money. The policies and procedures used with these clients need to match the margin they bring in for the firm. These clients often get minimal treatment, verging on getting “THE” treatment if you want to make a profit from them.
Your D group is the lowest client ranking. These guys, most companies try to avoid due to the high level of attention required. Sometimes, it can be a loss situation. Think of this group as a Ford Pinto. Remember that car? The one that blew up when another car bumped its rear bumper? These clients are always trying to get a discount on the cheapest price with a long-term payment contract. These clients pay late, sometimes not at all, or go bankrupt. After spending too much time and money with these clients, your profit margin goes negative.
Utilizing a collection strategy is an extra way that client ranking can be beneficial. Having a collection strategy implemented for certain customers allows for the company to know how to contact the client and how often to contact them. For Client C the company could find themselves only sending one email and receiving their funds shortly after. But for Client D, the company may have to send multiple emails and phone calls in order to receive their funds. Collection strategies, reminder letters and collection letters can be all be easily implemented with an Accounts Receivable Management application. Overall, the client ranking system allows for businesses to understand and guide departments on the best methods to receive payments.