A utopian business world would see all business clients paying all bills on time, each and every
time. Obviously, this is different from reality, so businesses must have processes in place to
ensure all payments are made
B2B collections that are efficient reduce friction and communicate transparently with clients. A
proactive approach rather than a reactive one, and an understanding of the uniqueness of each
client. Throughout this article, we will discuss how to increase the effectiveness and efficiency
of your B2B collection.
What is B2B Collection?
The process of collecting outstanding payments from business customers may include
everything from friendly reminders to late fees to legal action. Before engaging a third party,
this first-party process should be completed.
The collection of business-to-business (B2B) invoices can be challenging. However, if managed
well, collections will help you improve your cash flow and retain your customers. In addition to
building your reputation as a professional and supportive supplier, it can also help you win new
business.
How To Improve Your B2B Collection Process
In comparison to B2C collections, there are more extensive business relationships to consider.
Therefore, your process should be clearly defined and understood by your staff and clients.
Business accounts are normally much larger and have more significant stakes. Smaller consumer
accounts are quicker to be handed off to a collection agency, whereas business accounts are
handled with heightened concern.
What are the ways to execute an effective B2B collection
operation?
Based on our experience and expertise, below are some of the best practices for B2B
collections.
- Always mind B2B
Clients in the business-to-business (B2B) sector often require flexible and bespoke payment
options in order to meet their complex business needs, and acquiring and onboarding loyal B2B
customers can take much more effort and time.
Maintaining a positive reputation and maintaining your B2B relationships will be easier if you
follow best practices around accounts receivable.
What is accounts receivable (AR)?
The term “accounts receivable” (AR) refers to money owed by a business or individual for
services or products that have already been provided.
The concept can apply to invoices that aren’t immediately paid, but in reality, it usually applies
to late payments, late fees, or credit extended over more complex or long-term payment plans.
Why manage account receivable?
Management of accounts receivables is the process of handling payments due to a business.
Recording, issuing, processing, tracking, and following up on invoices and other past-due
accounts are part of this process.
Additionally, it involves contacting customers and collecting payments as well as late fees and
unforeseen costs associated with your service.
A/R management is increasingly outsourced because cumbersome manual tasks distract teams
from innovation and bog them down
How does B2B accounts management differ from B2C accounts receivable management?
Due to the nature of B2B businesses, working capital and payment terms often require careful
planning, longer business cycles, and special credit systems.
The lifetime value of a B2B customer is likely to be higher than that of a mass-market consumer
because of these conditions. Meaning, the differing needs of your B2B clients is to be
respected.
Building a customer relationship, and nurturing and maintaining those customer relationships
requires a focus on customer experience. This is from the ‘Add to cart button’ all the way to
buying, invoicing, and beyond.
In the small world of B2B, businesses often talk. A few decision-makers negatively evaluating
your collections policy or payment collection process could cause your business to gain a
reputation for being difficult to do business with.
2. Communicate clearly
In order to manage B2B accounts effectively, clearly communicating your account and payment
process should be a top priority.
Be straightforward and clear in your communications. If any provided information is critical and
difficult to understand especially the due dates, the process of collection, and late fees it should
be explained clearly and highlighted to the client as they are likely to be missed.
Some other important information like deadlines, payment terms, and follow-up late payment
steps should be distinctly listed and available to your customers.
Ensure to mention the critical information/details verbally or in email or other communications
during the early relationship and at points where they can be found. You can also create this as
an automatic tuning process.
3. Follow consistent collection steps
When your client does not pay or respond via the normal communication channels in a timely
manner, you need to take the next steps:
Follow these 6 steps for an excellent account receivables management
1. Questions to ask Yourself
Consider the following checklists as part of your decision-making process:
Who sent the invoice and to whom?
● Do you know who the owner is? Have you contacted him directly?
● Did you receive an initial response?
● Do past-due invoices have a pattern?
● Is the client’s industry or company facing any challenges?
● Can you provide an alternative treatment plan?
2. Other communication channels
B2B and commercial communications in most countries are regulated differently than B2C.
Consumer debt collection methods such as repeated calls, phone calls at work, or revealing
information about the debt to third parties are prohibited by the Fair Debt Collection Practices
Act (FDCPA) in the US.
Nevertheless, businesses can use skip tracers and contact multiple people within the same
company with frequent calls in the commercial world.
What is skip tracing?
Skip tracing (also known as debtor tracing) is a method for finding information on debtors who
have “skipped town”.
An online skip tracer service can assist in collections efforts by doing the time-consuming
research and gathering of information required before contacting certain customers.
3. Demand letter
Demand letters can be sent in case your standard lines of inquiry are ignored for a long period.
What is a demand letter?
A demand letter is usually written by a lawyer on behalf of an organization. The purpose of
them is to settle disputes over payment (broken contracts, ensuing terms, etc.).
Letters of demand are the first step towards legal action, as well as a preventative measure.
They detail the dispute and create a paper trail that can be used later as evidence.
How long until you send a demand letter?
If you send it too early, it may affect your future dealings with the client. It depends on the
business and the specific relationship.
The general rule of thumb is to wait at least 30, 60, or 90 days before sending a demand letter
4. A Debt collection
For many businesses, hiring a specialist B2B collections agency is the next logical step if their
collections efforts aren’t working.
Unlike those who focus on consumer accounts, it may be easier for them to understand the
nature of the account and the clients involved. This may resolve the dispute and eliminate the
need to go to court if successful.
5. Litigation
When all other options fail, and you are highly confident of a successful outcome, you might
consider heading to court. Losing a case could not only be costly, but it could also impact other
potential clients’ likelihood of using your product.
6. Cut your losses
The sink cost fallacy is difficult to avoid when hiring a law firm.
If a business believes that recovering a debt is unlikely, it should consider writing it off. This is
because internal efforts are taking too long, or the settlement will be less than your legal costs.
Conclusion
Collection management drains company resources and is an unwanted overhead.
By following our guidelines, you can reduce the amount of effort you need to put in.
In order to maintain a professional approach, positive relationships, and cash flow, you need to
communicate clearly your terms and align with your customers’ processes.
Due to the relatively small number of B2B clients and the specific invoicing and credit policies
they follow, these are crucial parts of the collections process in B2B.
Following the above-mentioned points will not only help you deal effectively with collection
cases but will also make them less likely to arise.
Creating clear parameters and processes is likely to result in rewarding long-term customer
relationships
