Customer-handling techniques


Bankrupt companies tend to burn billions of forints from the Hungarian economy, and due to the domino effect, hundreds of other companies are drawn into bankruptcy every year. Creditors do have various useful and effective tools to map the liquidity and credibility of their partners, even if the basics of this professional know-how are hard to find in Hungarian business life.

The Budapest Business Journal has now asked the experts of Credit Management Group to gather the basic practices and sources of information that are accessible by and available to anyone, are free or very low cost, and that will greatly improve a company’s ability to filter out the “weakest links” of its customer portfolio. Although the following list is just a little slice of the palette, consistently using these tools could save a company millions of forints, not to mention the substantial amount of anxiety, stress and panic it can also spare its management.

First steps first (before we deliver anything)

It might not be obvious at first, but it is well worth checking a company’s state and operational status way before the first meeting. This will not cost money and it can be of great help: if a liquidation procedure or a winding up procedure is underway, even the first meeting can be cancelled with that partner. An enforcement procedure by the National Tax Authority (NAV) is also likely to change the mind of even the fiercest salesperson. And the good news is that all this information is publicly available and accessible: anyone can easily check a partner company based on a certificate of incorporation or by a search on the NAV website.

Getting to know the partner

Another common protocol is briefly mapping the partner company’s market position, references and operational procedures as well as its owners, decision-makers and suppliers. The best resources for research of this kind include the certificate of incorporation, browsing the company’s own website, checking its media presence and taking a quick look at its market environment.

After finishing the obligatory rounds, like searching the company’s name in Google, reading its press releases and exploring its media appearances for the past few years, comes another quick check skimming through the basic business facts and figures. Has the partner company submitted its mandatory yearly report? What do its numbers show? How did the revenue change? Is it making a profit or is it massively in the red? How big are its debts? What about its disbursements? How has the circle of suppliers changed? Finding the answers to the questions above is quick and easy by reading through a company’s yearly report.

After getting to know the partner company a little better, it is of utmost importance to set a deadline and a credit line, at least internally, and to attempt to keep the partner within these pre-set frameworks while doing business with it, CMG’s experts advise.

Put it in writing!

Putting the conditions of the cooperation into writing is imperative, credit management experts at CMG highlight. Undocumented or not appropriately documented business relationships can lead to extreme amounts of trouble. The conditions of a contract are equally important to both parties: they have to describe and define the exact parameters of delivery (like price, quality standards, the bearing of unexpected costs, payment conditions, etc.) as well as prescribe the proceedings in case of a potential argument. Of course, the contract can specify important rights for the supplier, too. The frameworks of a contract have to be prepared only once – after that, the document can be used with minimal changes throughout the lifespan of the cooperation.

Follow up on the operation of the customers!

Following the changes and acting upon them is a task of primary importance, especially since the economic crisis broke out in 2008. The status of a certain customer may easily and swiftly worsen, even if it was deemed favorable earlier. The only way of knowing this is to continuously monitor the operational changes of your clientele, with a particular focus on developments that might have a potential effect on liquidity or solvency (see our box for a list of changes that might well signal more than just administrative transformation and that might be worth looking into more thoroughly).

If you suspect that the payment capacity of your customer has changed, you must not remain idle yourself. Downgrading a partner and applying more rigid conditions can be one of the most important precautions you can take to avoid future losses.

Consistency is key

Although no general advice can be carved into stone, the critical thing to do with overdue payments and outstanding invoices of a partner is to remain consistent and predictable. While a key supplier can easily suspend its deliveries, even after a short delay in the payment, a more competitive environment where there are lots of alternative suppliers may require more flexibility with deadlines and a longer period of patience.

In order to maintain a good and mutually satisfying relationship with your company’s customers, your debt collection practices need to be fair, predictable and consistent. It is crucially important that identical situations trigger identical reactions. Typical mistakes, like demanding shorter payment deadlines because of a company’s own liquidity problems, or neglecting to send out late payment notices in the summer holiday period, should be avoided at all costs, as inconsistencies of this kind can ruin months of dedicated work in an instant, CMG’s experts conclude.

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