B2B Debt Collection: 5 Risks That Owners and AR Managers Should Be Aware Of

  • 26 February 2022
  • By MNS
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  • B2B Debt Collection: 5 Risks That Owners and AR Managers Should Be Aware Of
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Introduction

The lifeblood of any firm is cash flow. The repercussions of interrupting the supply are immediate and severe.

A strong B2B procedure can assist a business to maintain healthy working capital and cash flow at all times. Let’s take a quick look at Accounts Receivable Management before we get into the B2B debt collection procedure.

Management of Accounts Receivable

Accounts Receivable Management is the process of collecting money for services or products sold over a period of time. Businesses accept regular payments over a period of time, with the entire contract amount defined as a single large sum.

Payment terms (payee, where to pay, due date, etc.), consistent invoicing, automated provisions for accepting payments, and a collection policy are among the best practices for Accounts Receivable Management.

b2b debt collection

This holds true for all business models, but those whose consumers are other businesses face a particular set of obstacles may look forward to an Accounts receivable collection agency. There are four major risks that distinguish B2B debt collection from retail and consumer debt collection:

1. A small number of customers

Many B2B company in debt collection, particularly those supplying specialist markets or small businesses, have limited and close-knit business opportunities. Often, only a few potential consumers are present, and they all know each other. Nothing spreads faster than bad news and mishandling debt collection or any other sensitive situation can have an immediate and irreversible negative impact on your reputation and market share.

2. Industry-Specific Consequences

Whether your B2B debt collection company sells its product upstream or downstream, it is likely sensitive to economic, regulatory, and supply-and-demand-related factors that can have a significant influence on cash flow. Everything is booming one day, and the next, your company is fighting for survival. When a whole supply chain is affected by past-due receivables, it’s critical that your B2B company has a strategy in place to reinforce high payment priority in order to avoid being trapped in a repeating toppling-dominoes effect. A good collection agency and proactive monitoring can be the difference between success and failure.

3. Increased Stakes

Purchase volumes in B2B sales are typically orders of magnitude higher than in consumer sales. 

A million dollars in retail sales can be spread between a number of buyers, but for an industrial manufacturer or distributor, it can be a handful of orders or even less than a single contract. 

For a B2B seller, a single contract gone wrong can have debilitating consequences.

4. Tougher Bargaining

Accounts Receivable managers might expect a higher level of sophistication in business-to-business debt collection than in consumer and retail debt collection. Negotiations are frequently done with qualified Accounts Payable specialists functioning under particular directives—or with the company’s owners. When dealing with a senior entrepreneur toughened by many economic downturns, or one who has endured earlier business failures and is currently facing new difficulty, approaches that may work effectively in B2C circumstances can have disastrous repercussions.

B2B collections are more challenging to recover losses due to a debtor’s bankruptcy because you’re up against banks and secured creditors.

In the B2B world, bad debt should not be considered a necessary risk or a cost of doing business. That isn’t the case. Download my free guide by clicking the link below, or contact me or my top team of B2B collection agency experts at any time.

5. Only alternative is to pursue debt collection.

Businesses can take up collecting responsibilities on their own, but they must be aware of the risks. After all, they’re risking their livelihood.

More than research and good negotiation skills are required of a collector. When contacted by an accounts receivable (AR) team, a collector must also be patient with debtors who may “go on the attack.” Your AR team must have a cool, professional, but firm demeanour at all times. They must set specified payment or, at the very least, follow-up time-frames. If deadlines are not met, they must immediately notify the debtor and put any orders on hold.

Conclusion:

The business, on the other hand, harms its own cash flow by not collecting on unpaid invoices. While you may not be owing money on your credit report, it can affect the amount you can borrow from the bank and your credit limit. Increased use of available credit has a negative impact on a company’s credit rating. Don’t let other people’s business troubles become your problems if you’re not willing to engage a debt collector.

Debt collectors, like any specialist industries, are difficult for a layperson to understand. 

A competent and trustworthy collector can assist you in deciphering the facts.

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