A Step-by-Step Guide on Choosing the Right B2B Credit Management System

Transactions between businesses and consumers vary significantly from dealings business-to-business. B2B transactions involve figures that read like phone numbers–it’s almost impossible to pay off in one go.

Consequently, most B2B payments are on credit, whereas consumers pay immediately. That compels most businesses to run B2B credit management to regulate their cash flow.

However, running a successful credit management system is no walk in the park. A report found that American businesses face an average of seven (7) days sales outstanding (DSO) after the due date. So, here’s how to settle for the right B2B credit management system.

 Business with good credit

What is B2B credit management?

B2B credit management is the process you use to control business credit, oversee accounts receivables management, and handle bad debts between companies. It refers to the entire management process that ensures you stay on top of trade credit.

B2B credit management practices include elaborating credit policies, managing cash flow, following up with defaulters, extending lines of credit, and collecting late payments.

That starts right from the order process of new customers, as they must first obtain credit approval. Further, it involves cash application when customers pay, and you match them with open invoices in the enterprise resource planning (ERP) system.

There are distinct strategies to ensure that the credit remains within acceptable and manageable levels. B2B credit management strategies ensure your company has a smooth flow of payment collections.

Why is B2B credit management important?

i) It nurtures business relationships

Most businesses find trading on credit terms convenient, so you will be on their good books and increase sales volume if you offer credit terms. Additionally, you will have sufficient cash flow to pay your suppliers on time, building your credit score and business credibility. When you have robust credit management, you can avoid defaulters.

ii) Your business has optimum cash flow

B2B credit management helps keep track of your accounts payables receivables, ensuring sufficient cash flow. As reported on Entrepreneur, more than 80% of businesses fail because of financial mismanagement.

B2B credit management protects your financial growth and performance, as many small businesses close due to defaulters. In addition, you avoid penalties for debt collection after late payments.

iii) Business thrives on good credit reputation

You build your business reputation when you consistently pay your dues on time. Suppliers will extend credit facilities only after you return a positive credit report.

You would also do well to conduct credit checks on businesses that seek credit terms from your organization.

How to choose a B2B credit management system

A B2B management system is a comprehensive software that streamlines how a business manages trade credit with other companies. Whether the payment solution has all the components and fits your workflow will depend on your vendor.

A generally viable system can include eCommerce, accounting, and invoicing functionality under one platform. If you find handling credit management too hectic for your taste, you could outsource to a credit management provider.

Besides cutting costs, subcontracting payment processing allows you to focus on your core functions and leave payment chasing to professionals. It would help if you considered the following for your next B2B management system:

a) Customer risk

Ensure it offers [business credit checks] from reputable credit agencies as you onboard new businesses for credit terms. The system should also include credit histories in the credit application to help gauge creditworthiness. Credit reports from companies like Experian and Equifax can help cross-reference the applications.

b) Terms of credit

The system you settle on should tell when to extend credit and allocate or increase limits to each customer.

Take Resolve, for instance; they have an entire net terms management team on tap. They can conduct an accurate credit check in minutes and advice that customers deserve 30, 60, or 90 days’ credit terms.

What’s more, they can offer you up to 90% of invoices upfront, so you won’t have to wait that long to get paid. They’ll even chase after the payment once it’s due; hence you only have to worry about your core business.

c) An interactive portal for the clients

Embrace transparency by including transaction history on a portal, enabling clients to check and update their accounts. It lifts some work off your shoulders as the client can do it by themselves, and you only get to verify the details. The portal allows customers to make online payments, check their accounts, and scrutinize payment history. However, the portal should not give up too much control over your business.

Archipelago Lightning testimonial

d) Automation

Automation is gaining ground in B2B credit management, making credit processing more efficient. The initial installation cost may be astronomical, but the subsequent monthly maintenance costs are lower.

An integrated B2B credit system lets you generate a digital invoice and allows the customer to log into the portal to make a payment electronically. The automated system can also send notifications when payments are due.

e) Various payment methods

Provide as many payment options and payment acceptance providers (Visa and MasterCard) as you possibly can. For instance, digital payments like wire transfers, B2B credit card payments, and automated clearing house (ACH) grant you real-time cash transfers with built-in fraud protection at relatively low charges.

boosts the customer experience

Do B2B credit systems have credit risk management measures?

Established credit risk management policies form the basis of any functional credit management system. Besides protecting your business from defaulters, operational B2B credit control shields your customers from fraud. To minimize risk, every company with a credit management system should:

  • Make clients aware of the credit terms, assessment of creditworthiness, and credit limits
  • Inform clients of transaction recording practices and procedures for tackling defaulters
  • Assess the probability of default, the forecasted default amount, the due date, and the loss you would incur on default
  • Depend on regularly updated data sources
  • Verify the current operational status of a company seeking a credit transaction
  • Anticipate fraud and financial crimes and set up measures to fight it

A sound credit management system must have a risk assessment component to mitigate losses and save time and resources. When your company is aware of the financial health of the client business, you can make more informed credit decisions.

Conclusion - Finding the right B2B credit management system

Good B2B credit management; minimizes risk, recovers debt, and boosts the customer experience. A robust B2B credit management structure ensures your business has steady cash flow, improves customer relations, and prevents lending to serial defaulters.


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