Business to Business Collections

Graphic Showing B2B Collections

Business to Business B2B vs. Business to Consumer B2C Collections

What is B2B-Business to Business Collections?

This is pretty self-evident, but all the other articles on this subject start with a definition, so I will too. B2B collections, short for business-to-business collections, refers to the process of collecting payments that are owed by one business entity to another. This typically involves a company or organization that provides goods or services to another business on credit terms, and then follows up to ensure that the payment is made according to the agreed-upon terms.

What is B2C – Business to Consumer Collections?

B2C collections, or business-to-consumer collections, refers to the process of collecting payments that are owed by individual consumers to businesses. Unlike B2B collections, which involve transactions between businesses, B2C collections deal with recovering debts from individual customers who have purchased goods or services on credit or through payment plans.

What is the Difference Between B2B and B2C Collections?

There are several key differences between the Business to Business and Business to Consumer collections process. Here are several we saw touted in more than one online article with which we disagree.

Their opinion – “B2B collections are usually more complex, as businesses tend to have more detailed financial records than consumers.”

Our opinion – The complexity of a business’s financial records as compared to a consumers isn’t particularly relevant to the debt recovery process. More relevant is whether the business or the consumer has the financial resources to meet the agreed upon payment terms. This information can and should be discovered prior to making a decision about extending credit, by running the appropriate credit reports.

However, the business-to-business relationship is extremely relevant. While b2c debts are more transactional in nature, b2b debt often involves long-term relationships that need to be preserved, creating additional complexity in the debt collections process.

What they say – “B2B collections sometimes involve higher dollar amounts than B2C collections”.

What we say – While business debt is sometimes higher than consumer debt, again we don’t believe it’s relevant to the collection process or the the success rate. In fact we’ve often found it easier to collect high balances than low balances, whether we’re dealing with consumers or businesses.

They say – “B2C collections tend to be more time-sensitive than B2B collections. This is because consumers typically have a shorter timeframe to pay their debts than businesses do. As a result, B2C collectors need to be more proactive in their collection efforts”.

We say – Time is always a consideration in collections. The longer you wait to try to collect, whether it is commercial debt or consumer debt the lower your recovery rate will be. Proactivity is key with any delinquent account or outstanding debt.

That little tidbit is more important than it sounds and represents the primary difference for debt collection agencies and anyone trying to collect business or consumer debt.

The FDCPA or Fair Debt Collection Practices Act does not apply to corporate debt or debt owed to a business. It applies only to consumer debt and it severely restricts what a debt collector and and cannot do or say when trying to collect older debt from a consumer.

Business to Business Collections Process & Tips

B2B collections begin with a well-designed accounts receivable management system.

Before contacting a collections agency small business owners and AR managers should consider the following 12 step system.

  1. Invoice on time and correctly: Invoicing errors are one of the most commonly reasons for late payment. Maintain good customer relations by correcting errors promptly and graciously.
  2. Send monthly statements: Provide regular updates on outstanding balances to keep customers informed.
  3. Respond promptly to requests for missing invoices: Address any requests for duplicate or missing invoices promptly to avoid delays in payment processing.
  4. Review your aging weekly for delinquent accounts: Monitor aging reports regularly to identify and prioritize delinquent accounts for follow-up.
  5. Send Friendly Email Requests for Payment Status: Extend friendly reminders to all delinquent accounts, not just large ones, approximately 7 to 10 days beyond payment terms.
  6. Send 2nd Requests to Non-Responders: Clearly label follow-up emails with “2nd Request” in the subject line to prompt action from non-responsive accounts.
  7. Call Unresponsive Accounts Payable Departments: Make polite phone calls to accounts payable departments for unresponsive accounts, assuming they may have missed your email communication.
  8. Set Up Payment Plans When Necessary: Offer and negotiate feasible payment plans to accommodate customers facing financial difficulties.
  9. Document All Communication and Confirm Agreements in Writing: Keep detailed records of all interactions and agreements in writing to ensure clarity and accountability.
  10. Be Persistent and Professional but Not Aggressive: Maintain a persistent approach to collections while upholding professionalism and avoiding aggressive tactics.
  11. Verify Contact Information for Unresponsive Accounts: Double-check contact details and explore alternative contacts within the customer’s organization if primary contacts are unresponsive.
  12. Send Final Demand Notices: As a last resort, send final demand notices via email and regular mail, clearly stating the next step involves engaging a third-party debt collection agency if necessary.

Business to Consumer Collections Process & Tips

Collecting accounts receivable from consumers can be challenging but essential for maintaining healthy cash flow. Here are some tips to improve your b2c collections process:

  1. Clear Payment Terms: Ensure that your invoices have clear payment terms, including due dates, accepted payment methods, and any penalties for late payments.
  2. Prompt Invoicing: Send invoices promptly after goods or services are delivered to avoid delays in payment.
  3. Establish Communication Channels: Provide multiple communication channels (phone, email, online portals) for consumers to inquire about invoices or payment options.
  4. Follow up Early: Send friendly reminders a few days before or on the due date to remind consumers about upcoming payments.
  5. Offer Payment Options: Provide flexible payment options such as installment plans or online payment portals to make it easier for consumers to settle their debts.
  6. Be Professional and Courteous: Maintain a professional and courteous demeanor in all communications with consumers, even when following up on overdue payments.
  7. Document Everything: Keep detailed records of all communications, payment agreements, and any disputes to ensure clarity and accountability.
  8. Use Automated Reminders: Utilize software or systems to automate payment reminders and follow-up emails, reducing manual workload and ensuring consistency.
  9. Be Empathetic: Understand that consumers may face financial difficulties at times and be empathetic when discussing payment arrangements or extensions.
  10. Know Legal Boundaries: Familiarize yourself with debt collection laws and regulations in your region (e.g., Fair Debt Collection Practices Act in the U.S.) to ensure compliance and avoid legal issues.

It’s best to assume good intentions on the part of your customer – Hanlon’s Razor comes to mind. Hanlon’s Razor is an adage that states, “Never attribute to malice that which can be adequately explained by incompetence.” Sometimes it’s their incompetence, and finding a supervisor or even another accounts payable employee will solve the problem. And sometimes it’s us – we’re not taking those extra steps I mentioned above.

Summary

Do your accounts receivable collection work to avoid bad debt collections. Whether it’s B2B or B2C, it’s easier and cheaper to prevent collection problems than to cure them. If you need help with accounts receivable collections, or bad debt collections b2b or b2c, give us a call at 800-201-CA$H (2274).

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