Hidden Costs in Your Trade Customer Onboarding Process

Let’s first set the scene

Have you ever wondered about the hidden costs when onboarding & managing your trade customers in your business?

We all know that onboarding a trade credit customer is crucial for building strong business relationships and driving growth. However, when it comes to working out the cost, we think about – where does it start – and then – where does it end? This is where the cost to business lies vs an automated application.

Think about:

Where can your prospect find you and sign up easily?
What is the desired customer experience?
How does credit track deals?
How can frontline sales track deals?
How many resends occur in your business?
What does it take for you to feel comfortable that it’s legitimate?

Now you’re here…..

What does your approval hierarchy look like?
How do you communicate outcomes and to whom?
How long has this taken and what are the implications of this?
How do you open the account in your CRM/ERP?
Now let’s monitor this for any risks that might come up – how is this managed?

And let’s not forget the emotional toll.

Your sales team, eager to close deals, are left in limbo, wondering why everything is taking forever. Meanwhile, partly courtesy of C19, but also the rapid pace at which technology is moving, customers are expecting quicker approvals, improved visibility and communication not to mention superior service.This frustration doesn’t just disappear—it strains relationships and can seriously dent customer satisfaction and loyalty.

Seeing these challenges, more and more businesses are looking for smarter, more efficient ways to streamline their trade credit approval processes. That’s where 1Centre comes in. By automating key steps and cutting out the manual grunt work.

Building a Total Cost Model for Trade Credit Customer Onboarding and Management

The onboarding process can often feel like a maze, winding through different departments like sales, compliance, legal, credit, and back-office operations. This fragmentation is a key reason why costs can spiral out of control.

Cost Driver 1: Operational Inefficiencies & Scalability

When we look at the Total Cost of Ownership (TCO) for trade credit customer onboarding and management, operational inefficiencies and scalability are crucial factors. Manual processes, common in decentralised systems, rack up significant time and labour costs that automation could slash.

Manual Processes (See Cost Driver 5 for a full download)

Handling trade credit applications manually is a grind. It involves data entry, verification, and processing—each step eats up time and money. Automation can be a game-changer here, cutting down on manual work and saving time and costs.

Error Rates

Let’s face it, we’re all human, and mistakes happen. But errors in manual processes, like data entry or verification, can lead to delays, extra labour to fix mistakes, and even financial losses. Automating these steps can minimise errors, improving accuracy and efficiency.

From Decentralised to Centralised

Imagine a decentralised system where multiple teams across different locations handle the same tasks. It’s a recipe for redundancy and inefficiency. Take a scenario with 65 groups, each having their own credit team—payroll costs, and resources are impacted. High-demand areas struggle with insufficient support while low-demand areas have idle resources. Plus, maintaining multiple locations ramps up overhead costs.

Switching to a centralised system can eliminate this redundancy, streamline processes, and speed up credit approvals. It ensures better resource allocation, reduces waste and operational costs, and paves the way for scalable growth. By centralising, you standardise processes across the board, enhancing efficiency and scalability.

Cost Driver 2. Opportunity Costs

Opportunity costs are a big part of the TCO for trade credit customer onboarding and management. These arise from missed revenue opportunities, delayed innovation, and indecision, which can have a hefty financial impact.

Not adopting 1Centre’s advanced features can mean missing out on significant revenue opportunities. That’s why, with our new customers, we usually see a ~30% revenue uplift within the first three months of implementation when all Sales Channels are turned on. There are many opportunities to open more doors for customers who can onboard more effectively and start spending quickly.

Cost of Indecision

Delays in trade-credit approval decisions can be costly. Prolonged decision cycles and approval hierarchies can frustrate customers, leading them to take their business elsewhere. This indecision not only results in immediate revenue loss but also harms long-term customer relationships.

Delayed Revenue

Inefficient onboarding processes can hit cash flow and overall financial health hard. According to a McKinsey report, inefficient onboarding processes caused global commercial and business banks to lose $3.3 trillion in 2018, as prospective customers abandoned applications. This highlights the critical need to streamline onboarding to capture revenue timely.

Missed Innovation

There’s no room for innovation in manual processes or outdated home-built solutions. At 1Centre, we specialise in trade customers—we live, breathe, and dream innovation in this space. When you partner with 1Centre, you get the latest innovations and upgraded tech to optimise your operations and seize opportunities faster. Delaying these innovations means taking advantage of benefits that could give you a competitive edge.

Cost Driver 3. Customer Dissatisfaction

Lengthy and complicated onboarding processes, often due to outdated systems, can create a poor customer experience with significant financial repercussions.

Poor Customer Experience

Inefficient onboarding can frustrate customers, leading to higher abandonment rates. This results in lost potential customers and their lifetime value, directly impacting revenue. The cost of a poor customer experience is the lost revenue from customers who never complete onboarding due to cumbersome and slow processes.

Churn Rates

Dissatisfaction with outdated or inefficient services leads to higher customer attrition rates. Customers expect smooth and efficient onboarding experiences, and when these expectations aren’t met, they’re more likely to switch to competitors. High churn rates reduce the current customer base and increase the costs of acquiring new customers.

Impact on Revenue

According to a McKinsey study, for every one-point increase in customer onboarding satisfaction on a ten-point scale, there is a 3% increase in customer revenue. A company generating $500 million in new customer revenue could mean an additional $15 million per point increase in satisfaction. Improving customer onboarding satisfaction can significantly boost revenue.

Cost Driver 4. Customer Retention

Customer retention is vital for trade credit customer onboarding and management in the TCO. The financial dynamics between acquiring new customers and retaining existing ones are significant.

Cost of Acquisition vs. Retention

It’s estimated that acquiring a new customer costs 5 to 25 times more than retaining an existing one. Moreover, the probability of selling to an existing customer is much higher (60-70%) compared to a new prospect (5-20%). This stark difference underscores the financial efficiency of focusing on retention strategies.

Impact on Profits

According to HubSpot, a 5% increase in customer retention can lead to a 25-95% increase in profits. This substantial profit margin is due to the lower costs of serving repeat customers and their higher likelihood of additional purchases.

Customer Attrition

High attrition rates require increased spending on marketing and sales to replace lost customers. This not only incurs higher costs but also impacts overall profitability. The negative financial impact is compounded by the time and resources needed to bring new customers up to the same level of familiarity and trust as existing ones.

Brand Loyalty and Market Position

Customer retention directly influences brand loyalty and market perception. Customers who see the company as lagging in technology or offering subpar services are more likely to switch to competitors. This loss of brand loyalty can diminish customer lifetime value and hurt the company’s market position.

The cost of poor customer retention includes expenses related to acquiring new customers and the potential revenue lost from those who leave. This encompasses marketing and sales efforts, onboarding costs, and the lost opportunity for upselling or cross-selling to existing customers.

Cost Driver 5. Processing Speed

Imagine a process with 15-30 steps, each one a potential pitfall of inefficiency. It could be you?

From the moment a prospective customer starts the journey, unsure of whether they can even apply for trade credit, to the final setup and monitoring, every step involves significant time and effort. But what if you could streamline this entire process, saving money and boosting productivity along the way? Let’s dive into the processing costs by firstly looking at a typical onboarding process.

A typical onboarding process …

Firstly, oftentimes the prospective customers don’t know if they can apply for trade-credit, nor where they can apply, what the process is and how to apply. So, they start by searching for that information.

Then:

Initial Enquiry: Prospective customer submits an enquiry for trade credit. Sales or credit team sends out a credit application form to the prospective customer.
Application Submission: Customer fills out the trade credit application form, including personal and business information, references, and financial details. Customer returns the completed application form via email, fax, or postal mail.
Manual Validation: Credit team performs various checks to verify the information like confirming the Australian Business Number is active using the ABN Lookup tool; verifying the business address against the Australian Securities and Investments Commission (ASIC) website and cross-checking any other necessary details to ensure the legitimacy of the application.
Data Entry: Credit team enters the application data into a spreadsheet or internal system.
Reference Verification: Credit team contacts the customer’s provided references (e.g., other suppliers) via phone or email to verify the applicant’s creditworthiness.
Credit Report Request: Credit team requests a credit report from a credit bureau.
Financial Review: Credit team reviews the customer’s financial statements, assessing the financial health and stability of the business.
Identity Verification: Credit team verifies the identity of the applicant, which may include checking government-issued IDs and sometimes searching for the applicant on social media platforms.
Management Review: Application is forwarded to higher management for review and approval, often involving several rounds of discussion and decision-making.
Clarification Requests: Credit team communicates with the applicant to clarify any discrepancies or request additional information.
Credit Decision: Credit team evaluates all gathered information to make a credit decision.
Credit Agreement: Approved credit terms and conditions are documented, and a credit agreement is drafted.
Signing and Setup: Credit agreement is sent to the customer for signing. Signed agreement is reviewed and given final approval by the credit team or management. Customer account is set up in the company’s accounting system, entering all relevant details and credit limits.
Notification: Customers are notified of the approved credit terms and account setup, usually via email or phone call.
Monitoring: Credit team periodically reviews the customer’s credit status and payment history, tracking invoices and payments to ensure compliance with credit terms.

**How much are all of these steps costing – literally?**

Breaking down the customer acquisition and ongoing management processes in your business can reveal hidden costs and inefficiencies that might be impacting your business more than you realise. Have you ever considered what this is really costing you?

First, think about all the people involved. Start with the salaries of your team members who handle these processes..

Next, consider the time each step takes. From the initial inquiry and application submission to data entry, reference checks, credit report requests, financial reviews, identity verifications, management reviews, and all the way to the final credit decision, agreement drafting, signing, and monitoring—each step consumes precious hours. Multiply the time spent on each task by the hourly rate of the person performing it.

Then, think about the delays. Delays are not just frustrating; they’re costly. For each step where hold-ups commonly occur, estimate the financial impact in terms of lost revenue or additional costs.

Finally, add it all up. Sum the costs for processing each application and factor in the delay costs. Multiply this total by the number of applications processed per quarter to get your quarterly processing cost. Reviewing these aggregated costs can help you spot the most time-consuming and expensive steps.

Automation can streamline these processes, cut down on manual labour, and minimise delays, ultimately reducing your overall costs and boosting efficiency.

Cost Driver 6: Risk Management

Effective risk management strategies can mitigate potential financial losses arising from fraudulent activities, economic instability, and other unforeseen circumstances. This section delves into the key aspects of risk management, including fraud prevention, managing instability, and insurances.

Costs of Fraud & Fraud Prevention

Implementing and maintaining systems to prevent and detect fraudulent activities is essential in protecting the business. Fraudulent activities in trade credit can take various forms, such as misrepresenting overdue payments, establishing fraudulent payment schemes, and presenting audited financial statements based on false information. Small-scale fraud is more common and often harder to detect, involving fake businesses being created or fraudsters posing to represent a legitimate company, this along with stolen identities.

The costs associated with fraud prevention include investment in advanced fraud detection technologies, regular audits, employee training on fraud awareness, and legal consultations.

And then there’s the cost of undetected fraud. When things go south, how much does it really cost you?

In 2022-23, about 1% of Australians fell victim to identity theft, with different types of personal fraud causing significant financial pain for individuals, businesses, and the government. On average, each incident of card fraud resulted in a loss of around $200, and the total hit was a whopping $2.2 billion (Australian Bureau of Statistics).

The increasing scale of corporate fraud, especially with the widespread adoption of digital technologies, necessitates continuous vigilance and investment.

Costs of Volatility, Uncertainty, Complexity, Ambiguity (VUCA)

Economic instability and financial difficulties among otherwise legitimate customers pose significant risks in the trade credit landscape. Volatility refers to the rapid and unpredictable changes in market conditions that can affect customer solvency and business stability. Uncertainty encompasses the lack of predictability in customer behaviour and economic trends, making it challenging to anticipate defaults and insolvencies. Complexity involves the intricate interdependencies within the financial ecosystem, where one customer’s financial troubles can cascade and impact multiple stakeholders. Ambiguity is the unclear and often conflicting signals about the future, complicating decision-making processes.

In Australia, 80% of businesses face unpaid debts, and 25% of these outstanding invoices lead companies to bankruptcy. This statistic underscores the high costs associated with VUCA in trade credit. Businesses must navigate these challenges by implementing robust risk management strategies, conducting thorough credit assessments, and maintaining strong financial buffers. The cost of managing VUCA includes not only direct financial losses but also the resources invested in monitoring, predicting, and mitigating these risks.

Effective risk management involves conducting thorough credit assessments, monitoring economic indicators, and maintaining strong communication with customers to identify early signs of financial distress. Establishing clear credit policies and contingency plans can mitigate the impact of customer defaults.

Costs of Insurance & Protections

Insurances play a vital role in managing the financial impact of unforeseen risks. Trade credit insurance can protect businesses against the risk of non-payment by customers. This type of insurance covers the potential losses from customer insolvency or protracted default.

Premiums are influenced by the amount of credit extended to customers and the agreed repayment terms. Additionally, your past claims history and any losses incurred play a crucial role in determining premium rates. The type of policy selected, such as whole turnover, key accounts, or single buyer, along with the desired coverage amount, also impacts the overall cost. The extent of risk your business is willing to assume, known as risk share, can further influence the pricing. The necessity for non-cancellable credit limits, which provide added security, may increase costs. Moreover, insurers consider the market outlook, including future demand for your products or services and the stability of your industry. Seasonal fluctuations in your business operations are also factored into the cost calculations.

Finally, and most importantly, the effectiveness of your internal credit procedures is a critical determinant. Robust credit management processes can significantly mitigate risk, thereby potentially reducing insurance costs and securing more favourable terms.

Other Costs Not Yet Explored in this TCO Model

When calculating your Total Cost of Ownership (TCO), it’s crucial to factor in all the hidden extras. Don’t forget about real estate costs, Microsoft Office expenses, and a risk model for potential fraud. These can significantly impact your final numbers. Also, think about IT infrastructure, training and development, maintenance and support, compliance and regulatory costs, and any other overheads tied to your trade credit approval process. By including all these elements, you’ll get a much clearer, more accurate picture of the true costs involved.

Introducing automation through 1Centre

1Centre is a FinTech leader transforming trade credit customer origination for Enterprise companies. Our state-of-the-art B2B SaaS platform is built on the core values of simplification and streamlining, making credit processes via technology accessible and easy to use and understand for our teams.

1Centre revolutionises the trade credit approval process by automating and integrating multiple steps into one seamless workflow. With our platform, businesses can process trade credit applications within minutes, drastically reducing the time and effort required for manual processing.

Key features of 1Centre include real-time business credit checks, multi-bureau integrations, Government agency integrations, ID verification, biometric capability, guarantees, and trade reference checks. These features ensure that businesses can quickly and accurately assess the creditworthiness of their customers, minimising the risk of errors and fraud.

Benefits:

Time Savings: The entire end-to-end process is completed in~10 minutes.
Cost Reduction: Automation reduces the need for manual labour, cutting operational costs.
Enhanced Accuracy: Real-time checks and integrations minimise errors and improve decision-making.
Improved Customer Experience: Faster approvals lead to higher customer satisfaction and loyalty.
Sales Team Efficiency: Sales teams can focus on closing deals rather than waiting for credit approvals.

Dive deeper into these advantages in our blog, “Five Big Benefits For Automating Your Credit Management Business Processes.”

Easy as 1-2-3

Simplicity achieved for suppliers and customers

1. Customer Applies: Customers can apply for trade credit through any sales channel—online, reps channels, physical locations, or call centres. Applications can be submitted anytime, anywhere, ensuring convenience and accessibility.

2. Automated Checks and Validations: 1Centre’s system automatically performs credit checks, validations, identity verifications, and scoring. Depending on the decision rules set by your business, applications are either auto-approved or flagged for manual review if necessary.

3. Approval and Notification: Customers receive approval in under 10 minutes. The credit team receives a complete file, ready for any further action or monitoring.

Automation does the work, making trade-credit onboarding easy, quick and secure for everyone.

Here’s a step-by-step breakdown of what happens behind the scenes:

Data Collection Across All Channels: Every opportunity is captured across various sales channels, including online platforms, reps channels, physical locations, and call centres. This comprehensive data collection ensures no potential customer is overlooked.
Intense Multi-Factor Credit and Identity Checking: Each application undergoes an intense multi-factor credit and identity checking process.
Virtual Credit File Creation: A virtual credit file is created for each applicant, consolidating all relevant data and verification results. This file is crucial for the subsequent review and approval steps.
Efficient Approver Notification: The right approvers are notified at the right time based on predefined approval designations. This ensures that applications are reviewed promptly by the appropriate personnel, eliminating unnecessary delays.
Automated Approvals and Immediate Decisions: Based on the gathered data and predefined criteria, many applications can be auto-approved, allowing for immediate decisions. This significantly speeds up the approval process and reduces the workload on the credit team.
Digital Signing and Account Setup: Once approved, the credit terms and conditions are documented, and a credit agreement is drafted and sent to the customer for digital signing. Upon receiving the signed agreement, the customer’s account is immediately set up in the company’s accounting system.
Automated Monitoring and Compliance: After the initial setup, 1Centre continuously monitors the customer’s activity with Watchtower’s 24/7 surveillance system.

Everything is a ton better with 1Centre!

With 1Centre, you not only save time and reduce costs but also enhance the overall efficiency, accuracy, and security of your trade credit approval process. Automation with 1Centre slashes the need for manual labour, drastically reducing operational costs.This streamlined process significantly cuts down unnecessary expenses. The entire end-to-end process with 1Centre takes less than 10 minutes, compared to the days or even weeks required with traditional methods, allowing customers to start trading on the same day and capturing revenue opportunities faster.

Faster approvals lead to higher customer satisfaction and loyalty, as customers appreciate the quick turnaround and seamless experience, enhancing business relationships and driving growth. Sales teams benefit from the streamlined process by focusing more on closing deals rather than waiting for credit approvals, boosting their productivity and morale, and ultimately contributing to better sales performance. Real-time checks and integrations minimise errors and improve the accuracy of credit decisions, enhancing the reliability of the approval process while reducing the risk of fraud.

Furthermore, 1Centre’s robust anti-fraud protections and 24/7 surveillance provide an unparalleled level of security. With six levels of anti-fraud measures and continuous monitoring, you can trade with trust, knowing that your business is safeguarded against potential threats. This commitment to security not only protects your business but also builds trust with your customers, ensuring that your operations are both efficient and secure.

Ready to transform your trade-customer onboarding? Explore 1Centre for more information or request a demo today.

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