Customers are a part of the business cycle and play a massive role in the business industry. If there are no customers, your business will only go down the drain. Customers are the foundation of one’s business success, so in every business process, you need to consider what your customers will feel and think of your products and services.
Aside from that, it is essential for business owners to know who their customers are and establish a strong foundation of the customer-seller relationship. Know your customer KYC may sound informative already to some people, but in the business world, it means more than that.
What is KYC?
In business terms, KYC stands for “know your customers.” But it has a more complex meaning when it comes to business. The process of knowing your customers is not only knowing them by their name, contact information, or address but their identity as well even before they are in the business with you or during the business transaction.
Banks, insurance companies, and financial firms always use this term and come in handy all the time when they handle and verify their clients’ profiles. Banks have become one of the largest supporters of KYC. However, KYC does not only limit to them but can also be used in any business.
How is KYC done?
KYC has tons of policies that clients and customers should comply with. KYC process includes requiring customers and clients all their necessary and detailed information about themselves for them to make sure that they are not involved in money laundering, theft, corruption, or any criminal-related cases.
These KYC policies continuously expand through time, and their importance has grown globally. A lot of companies, not only financial institutes and firms, have realised the impact of KYC on their businesses and have started practising them. These policies have evolved over the years and have become more useful than ever. KYC policies have made it possible for companies to offer transactions legally to their customers. This also ensures that customers are working with licenced, professional, and legitimate companies.
Components of KYC
There are four components of KYC, which are:
- Customer Acceptance Policy
- Customer Identification Procedures
- Monitoring of Transactions
- Risk Management
Tips in Knowing Your Customer
The program has practices that one should learn how to do it. These practices are the following:
- Establishing the identity of the customer
- Understanding one customer’s nature and activities. Your customer needs to have a legitimate source of funds.
- Explain what money laundering risks are and what are the things that can be associated with the risk with the customer for purposes of you monitoring their activities.
As a business entity who instils trust between you and your customer, you need to practice these KYC elements:
- Primary Customer Due Diligence. CDD is the type of information that businesses should get for all customers to verify their identity.
- Enhanced Due Diligence. EDD is the additional information that is taken from customers who have a high risk of the business they are dealing with. It comes with a more in-depth understanding of the customer’s activities that are associated with high risks.
- Customer Identification Program. CIP consists of the collection, verification, and record-keeping of the customer’s identity and information. This is also used for screening customers via their backgrounds and will let you know if they have criminal records.
Profiling Your Customers
If you want to know your customers better, you have to determine your ideal customer profile. By doing so, you can create better sales and marketing strategies to attain your business goals. So how do you profile your customers?
Check out these tips to determine your customer profile:
- It All Boils Down to Your Products and Services: Have you recently added an item to your product line? What are the features and benefits of your products and services? Who can use them? Answering all of these questions can help you determine the compatibility of your product to your existing clients and the possibility of acquiring more customers in varying age groups, both sexes, and other demographic factors.
- Conduct a SWOT Analysis: What are the strengths, weaknesses, and opportunities that your business faces? Are you able to test the results of your sales and marketing strategies? Google Analytics and other online tools can be used to measure results, such as your website’s clickthrough rate or the number of clicks and bounce rate or percentage of visitors leaving your website almost immediately. Through careful analysis, you can make sounder business decisions.
- Study Customer Behaviors: What are the similarities and differences in your customers? Who among them purchases your product for a specific purpose? Studying customer behavior can help you profile your customers or create buyer personas that can guide your sales team to implement effective strategies in each phase of the sales funnel.
- Implementing KYC: Understanding KYC can help you create practical methods for approaching your target audience and avoiding rejection. By knowing your customers better, you’ll get the buy-in, boost loyalty, and create a meaningful and long-lasting business relationship. Being consistent with KYC execution will give you fruitful rewards and benefits for your business to thrive and become more successful because of having satisfied and happy customers.
KYC is an essential practice that all businesses should apply in their business system, especially when they are acquiring customers. This serves as a security for both the business entity and the customer itself and would lead to a more safe and trustworthy transaction in the long run.
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