What is a B2B credit management system? | Chaser

Not performing credit checks

You don't want to extend credit to a problematic client, which is why your first stop should be performing a credit check. Analyzing credit reports will give you insights into an individual's spending habits, unpaid invoices and general financial track record.

Obviously, this can't be performed by every business for every client, but where there are large sums of money involved, you are best placed to run a check on his or her credit history to ensure smoother payment collections in the future. This will also help you set reasonable credit limits on their accounts.

If a client defaults on their payments, it risks creating a bad debt expense for the company extending credit. Good credit management software will warn you if this is inevitable, but it ultimately comes down to performing a thorough check on new customers and managing credit lines correctly.

In short, make sure you gauge creditworthiness to prevent bad debts. Thoroughly analyze any credit application that you receive, and think carefully before extending credit to a new B2B client.

"You don’t want to take on a problematic client which is why your first stop should be performing a credit check."

Unclear business credit terms and conditions

Sometimes, a lack of payment can simply be put down to the fact that the terms of payment haven't been clearly outlined. Make your payment terms as clear as possible, including specific clauses in the invoice that specify the payment timeframe.

Preparing clear documentation that outlines your credit terms can help a lot. Make sure new customers understand the consequences of credit defaults, and let them know if there are any discounts or incentives for smooth payment collections. You should also provide a verbal explanation of your payment terms as many clients simply don't read the invoice in its entirety.

It's also imperative to note any late fees and associated costs related to late payments in the invoice – and to enforce these. If not, then you're likely to get caught in a cycle of delayed payments. This information should all be visible on the customer portal so that it’s easy to find.

Limited options for making payments

The digital age has opened up extensive avenues for online payments but some businesses aren't taking full advantage of this reality. Rather, they insist on payment methods that suit them, rather than considering payment options that work best for the client. This is often true for global eCommerce companies that assume payment methods are the same in different countries. Some of the common options for payment are:

• Mobile card machines;
• Debit cards
• Cash
• EFT payments
• Online credit card
• Payment portals

If you want your clients to make timeline payments, then you need to include more options. A good B2B credit management system should have the ability to accept payments from all kinds of systems such as an online portal. With more options, you’ll notice an improvement in consistent cash flow.

"A good B2B credit management system should have the ability to accept payments from all kinds of systems such as an online portal."

 

Not taking the client into account

Thinking ‘it's just business' is not going to get you very far, because it's never ‘just business'. B2B credit management relies on customer relations and this extends all the way through to the payment.

Your customer might be in a unique situation where they need to delay payment for whatever reason – a sick family member, car accident, a tree falling on their house – and they just need a bit of time to meet your deadline. Just remember that things happen! However, coming up with a payment arrangement may ensure you actually get paid.

If the customer has had an otherwise clean payment history, then you can probably continue their credit line without worrying. However, if collecting payments continues to prove difficult, then it may be necessary to limit their business credit and remind them of your credit policy.

Invoicing delays

It seems the most obvious answer but invoicing timeously actually encourages a quicker turnaround in terms of payment. However, this is often easier said than done as taking care of the actual work means the process of invoicing gets pushed back every day. The best time to invoice is immediately after providing a product or service as this is when the customer is happiest and most likely to pay.

You should email the invoice as soon as possible if you are not able to give the customer a physical invoice. Other possible invoicing errors that might lead to delays are:

• Taking down the incorrect email address or telephone number
• Addressing the wrong person on the invoice
• Not confirming that the invoice was received

The key to managing credit issues is to always be prompt in collecting payments. Delays only harm your credit management processes, and the problems will cascade into larger ones if you’re not careful.

Not giving incentives for prompt payment

One of the most effective ways to encourage people to pay invoices on time is to incentivise prompt payments. Make it clear that any late payments will incur fees or interest – so if not paid after 30 days, 60 days, 90 days and so on. Depending on your business, you can also stagger invoices so that goods and services are only offered once payment of an invoice has been made.

Incorrect invoice processes

The person or persons involved in invoicing the client must be fully briefed on every aspect of the invoicing process. This includes sending off the invoice, and communicating with the client, as discussed, so that payment is made in full and on time.

If your staff is not implementing the correct invoice processes, then the customer can't be blamed completely for missing payments. This could lead to misunderstandings that harm customer relations, and may reveal flaws in your credit system that need to be resolved.

Lack of preparation

To ensure the correct invoice processes are followed, you need to fully prepare your staff from the start. This means putting in place the necessary training so that everyone is briefed on what is needed from them. This includes the day-to-day strategy so that you're never at a place where your business is suffering because of poor credit control.

It can be a good idea to create company plans when it comes to opening lines of credit for new customers. Clearly setting out your expectations and the responsibilities of your staff will make it easier to handle accounts receivable and also help with managing risk later down the line.

Not following up

A major part of your debt control process is simply following up on the sending of an invoice. As mentioned previously, the first step once an invoice is sent is ensuring the client actually received the invoice. They can easily end up in the spam folder, or simply be overlooked. A simple follow-up email, message or call can result in the invoice being settled that much faster.

Avoiding the phone

With so many modern communication platforms – emails, text, social media messaging – we often avoid the most obvious solution, which is just picking up the phone and calling.

Calling does require some measure of confrontation, but most clients are likely to pay faster if you just call and remind them. Speaking to the customer might also reveal the reason for the non-payment, and you can come up with a solution for the payment to be made. You can solve the issue in real time rather than endless back-and-forth emails.

Forgetting to say thanks

It's very easy to accept a payment, have a sigh of relief and move on to the next job. But a simple message of thanks to the client goes a long way in strengthening the relationship and increasing the speed of future payments.

Positive messaging should be an important part of your credit management system and should be done promptly.

Not addressing delinquent accounts

Sooner or later, you’re probably going to encounter some delinquent accounts which have failed to make their required payments. This comes with the business of managing credit lines and it’s important to understand why this has happened by communicating with your business to business clients.

Perhaps the solution is simply explaining the terms of payment collections, or maybe you can adjust credit lines by taking a better look at the client’s financial health.

Even with good accounts receivable management, there will be times when a client cannot pay. Failing to address these accounts will negatively affect your company’s cash flow and financial health. Unless you want to rely on a debt collector, it’s best to communicate if clients rarely pay to ensure your company’s success.

Using the incorrect tools

The bigger your business gets, the more complex your credit management process. There are more invoices to send and keep a track of. This can become too big for staff to handle which is why a reliable B2B credit management system is a great solution.

From how you track payments to generating concise financial statements, using the right tools can drastically simplify the task of credit management. Integrating a robust credit management solution early on also helps mitigate risk when credit lines extend, and it gives you more control over individual processes.

Software from Chaser can assist you in automating all credit management systems so that you're avoiding all the above-mentioned mistakes and getting your money faster. In addition, it gives you insight into the customer's payment habits and makes it possible to optimise the payment chasing process. Because your credit management system is automated, you're eliminating the chance of human error as well.

Please feel free to contact our team and let us answer any questions you may have.