We seek to provide you with the most practical view of your customer relationships.
The general principle is that the customer relationship should last for one year after the last invoice is sent. It is reasonable to assume that if no invoice has been sent in the last 12 months and there is no prospect of additional revenue in the next 12 months, then the business relationship is dead.
Moreover, one year is a nice number because it helps explain the variations between the state of the client portfolio today and the composition of the portfolio last year.
That's in theory. And in theory, everything is going well.
Experience has shown us that little flexibility was necessary, especially since our businesses are constantly looking to create recurring revenues.
Let's take the example of a web-hosting service for a client's website that we bill once a year. If we apply the rule of the year, we would be alerted that this client is leaving the portfolio after 11 months. And it would be marked lost the day after the anniversary date of the contract. It does not reflect the reality of the business relationship. However, we all get a little behind in our billing processes. We don't always bill on the invoice date. Sometimes a little bit later, and we backdate the invoice.
To stand the test of time, we have decided to grant a 35-day grace period, just over a month. This delay is a buffer for our internal processes and to give that small extra for adjustments.
365 days + 35-day grace period = 400 days. 400 days without any transaction before a client is deemed as lost.
What happens if we plan an income or send an invoice for a client whose status was lost? Well, we treat it as a new business relationship or at least a new customer life cycle. This avoids distorting the statistics by having customers with a life cycle of several years when we had one transaction several years ago and one recently.