When a major B2B retailer partnered with BlueTarp, within months the company reduced days sales outstanding (DSO) by 33% and delinquencies by 46%. Now, the retailer has more money and time to devote to accelerating growth. Here’s a look at how they achieved it and how the current economic trends may create delinquency challenges for other retailers.
Uncertain economy and consumer confidence can lead to late payments
While steady economic growth over the past decade has kept consumer confidence relatively high, there are signs that the economy may be facing a downturn, and consumers are starting to be more cautious. Combined, these factors create an environment in which late payments are more common.
An April report from The Consumer Board think tank suggests that global consumers may begin to spend more cautiously in the coming months. In more than half of 64 countries surveyed, consumers expressed uncertainty about the economy. As consumers’ wait-and-see attitude extends into the B2B realm, retailers should expect to see more late payments and delinquencies.
Automated billing notifications are key
These conditions should make optimizing your collections process a high priority. When BlueTarp partnered with the retailer mentioned above, they introduced automated email notifications to let customers know what’s due and when. They can also be deployed for past due notices and other account alerts.
Almost everyone has an email address and a smartphone, and conduct the vast majority of their business online. Yet many B2B companies still rely on phone calls and the US Postal Service to drive their collection processes. Automated email notifications allow your collections team to achieve with the click of a button what would otherwise take hours or days. And unlike collections calls, emails likely won’t be viewed as intrusive or confrontational. By including a link to online account tools where customers can conveniently pay, BlueTarp’s systems make the process even simpler for customers.
half of all invoices issued represent loans from companies to its business customers
Many B2B companies fail to give collections the attention it deserves. According to a recent survey by the credit insurance provider Atradius, overdue invoices represent 50% of all receivables for B2B companies. That means that half of all invoices issued represent loans from companies to its business customers.
Customize your approach to collections
For the retailer who partnered with BlueTarp, automated billing notifications become even more powerful when combined with a more strategic approach to collecting. For retailers with a wide array of customers, a one-size-fits-all framework for payment collection isn’t optimal. Companies should assess the true risk of not getting paid on a customer-by-customer basis, while also taking into account the customer’s relative profitability. Putting these two pieces together gives you a simple, powerful framework for how you should approach collecting.
To understand which customers are in trouble, consider pulling credit reports three times a year. Some warning signs are obvious, such as delinquent accounts with other companies. Other signs, such as a gradual increase in borrowing amounts over a long period of time, might be more subtle. To understand a customer’s true profitability to your firm, look beyond its gross profit numbers to factor in its share of your delivery, administrative, borrowing, inventory and other expenses.
With this information in hand, you might decide to send more frequent payment notifications to high-risk, low-profit companies than other customers. With the highest-risk customers, you might consider moving them to COD, assessing fees, preparing and filing liens, or using a collections agency. Low-risk, high-profit companies, on the other hand, might receive less frequent payment notifications and more leeway on the occasional late payment.
Slow collections and delinquencies can do serious damage over the long term, in the form of wasted labor, inadequate cash flow and inaccurate financial forecasts. Automated notifications, in conjunction with a customized collections approach, can help optimize your company’s receivables while improving the customer experience.