06 Dec 2021
by John Kane FCICM

Know Your Customer

From customer service and identifying risk, it is important than ever, to know who you are dealing with


In today's fast-paced business world, where trust and financial stability are paramount, understanding your customers is not just good practice – it's essential. Welcome to the Chartered Institute of Credit Management's podcast. I'm Tom, your host, and I'm here with John Kane, Head of Strategic Relationships at IBM. Today, we're delving into the world of KYC (Know Your Customer), a critical tool in the realm of credit and credit risk management.

The KYC Revolution

We spoke with John Kane about the fundamental lesson in Credit Management:  Know your customer, otherwise abbreviated as KYC, as a crucial element in credit risk management. KYC serves a dual purpose: mitigating risks and enhancing customer service. In an era marked by fraud and unethical business practices, it's more important than ever to have robust KYC processes in place.

Getting to Know Your Customer

So, what does "Know your Customer" entail? At its core, KYC is about collecting data – lots of it. When a customer approaches your business, whether through an application or a phone call, you need to gather as much information as possible. Here's what you should focus on:

  1. Identity Verification: Start with the basics. Is the customer who they claim to be? Collect personal information, addresses, phone numbers, and details of filed accounts.

  2. Email Verification: Email checks serve as quick, efficient verification methods. They provide a valuable sense check, helping you confirm the customer's authenticity.

  3. Forward and Identity Checks: With the prevalence of fraudulent activities, conducting identity checks is crucial. These checks are your first line of defense against fraudulent transactions.

  4. Customer Profiling: Gain insights into your customer's industry and market sector. Understand their supply chain, who pays them, and who they pay. This knowledge helps you anticipate factors that can affect your business relationship.

  5. Cash Flow Analysis: Follow the money. Understand where their cash comes from and where it goes. This information equips you to manage your expectations and formulate a strategy to navigate the relationship effectively.

The Power of Data Integration

John emphasises the importance of aligning various departments within your organisation, including sales, marketing, finance, and credit. Each department may interact with different individuals within the customer's organisation. Sharing KYC data ensures that everyone is on the same page, facilitating a more cohesive approach to managing the client.

Enhancing the Customer Experience

KYC isn't just about risk mitigation; it's also a tool to deliver exceptional customer service. Understand your customer's expectations and tailor your interactions to meet them. Streamline processes to make their experience smoother and more efficient. Consider aspects such as portal access for invoices and align your invoicing process with their needs.

Effective Communication

Lastly, establish clear lines of communication. Identify key points of contact within your customer's organisation, ensuring that you reach out to the right people for payment, orders, or inquiries. This approach eliminates the frustration of chasing down contacts and ensures that your customer feels valued.

Adapting to Change

Customers and circumstances change over time. Stay vigilant by monitoring your customer's credit rating, shifts in their business structure, or changes in their client base. Being proactive in understanding how external factors affect your customer is crucial in risk management.

The Bottom Line

In conclusion, knowing your customer is not an option; it's a necessity in modern business. Without a robust KYC policy and process, you risk uncertainty in collections, high-risk transactions, and potential business losses. Establishing a strong KYC foundation, understood across your organization, and with reporting mechanisms in place, is key to managing your customer relationships effectively.

Investing time and resources into "Know your Customer" can be the difference between a successful, sustainable business partnership and a risky venture. So, get to know your customer, and ensure your business is built on a foundation of trust and understanding.