Risk Management: Increasing Credit to Bolster Bottom Line Growth
You know how important your current customers are to your bottom line. Most organizations spend significant time, money and effort to acquire, retain and grow profitable customers. Generally the costs of acquiring customers is high and businesses often need long term relationships with customers to recover those retention costs. So, how do you keep profitable, long-term customers, realize more ROI and lower marketing costs? One way is by extending additional credit.
Building more valuable relationships
Extending credit lines and managing them strategically can help increase the lifetime value of the customer. However, mismanagement can cause serious cash flow problems and potential loss of good customers. Over time, customer financial situations will fluctuate, and what was once an appropriate credit line may no longer be suitable. The key is identifying and having a clearer picture of those financial ebbs and flows, so the appropriate actions can be taken to mitigate risk.
Businesses must be careful as they decide which credit limits to extend, decrease, maintain or eliminate. This is especially true when you’re considering extending credit lines. Yes, with more credit the customer may be able to buy more from you, but will they still pay on time? A recent Equifax study shows how clients can to arm their account team with the insights needed to make more confident credit line decisions.
Mitigate risk and help grow revenues with a deep understanding of customer behavior
The study showed how Equifax Dimensions helped that lender improved its ability to identify which customers were in the best financial position to receive a credit line increase (CLI) of $1500 without going delinquent in six months.
Equifax DimensionsTM organizes consumer credit trends to better predict the consumer’s future credit behaviors. With up to 24 months of trade line information on over 1.3 billion trades, Equifax Dimensions provides clients with trended credit insights that can help drive more confident decisions, increase the lifetime value of customers, and maintain desired credit risk thresholds.
Every business is different so results can vary, but in the case of this study, Equifax Dimensions delivered a 6 percent uptick in the ability for customers to predict those consumers who would not default after a $1500 increase in their credit line. This predictive lift could help lenders:
- Better prioritize and segment marketable populations
- Assign or adjust (typically increase) credit limits for customers
- Reduce the cost of marketing
- Increase customer retention and profitability
The time and energy you continue to invest in acquiring profitable customers is valuable to your company. Implementing the right tactics to better identify risk and understand those customers is priceless in taking the relationship to the next level.