B2B Cross-border Payment Part 6: 8 Key Strategies for Maximizing Efficiency in B2B Collections That Export Business Owners Need to Know
In the competitive world of Business-to-Business (B2B) transactions, efficient collections are crucial for maintaining a healthy cash flow and ensuring the financial stability of an organization.
However, as FinFan discussed in a previous article about cross-border payments for import-export, companies must navigate a very complex process to ensure cash flow reaches them.
Because, unlike Business-to-Consumer (B2C) transactions, B2B collections often involve larger invoices, extended credit terms, and complex customer relationships.
Overview of B2B Cross-border Payments in 2022-2023
*Analysts estimate that $39.3 trillion of cross-border business-to-business (B2B) payments will be made in 2023, and reach $56.1 trillion by 2030. Add the wholesale banking sector to that (which includes institutional investments and currency trading), and the current value of cross-border B2B payments is $186.2 trillion, accounting for 98% of all international transactions.
Growth has been a consequence of globalisation that has increased trade, and so the need to transfer currencies across borders. That commerce has been driven by large enterprises trading in physical goods, but the growth in B2B ecommerce will see it become the leading contributor by 2030, worth $22 trillion.
This is B2B catching up with the consumer market. Increasingly, businesses are going to online marketplaces to purchase goods and services (eg Alibaba, Amazon Business, Upwork, ECPlaza). Meanwhile, the pandemic accelerated the move for many to open up or improve their online sales channels, and service demand from consumer businesses that needed to do the same.
They are being supported by the emergence of a new breed of fintech players that are making it easier and cheaper for large and SMB companies to send and receive B2B payments from abroad.*
*Source: bvnk.com
Here are some key strategies to maximize efficiency in your B2B collections process:
1. Establish Clear Credit Policies
Set Credit Limits
This is also a crucial step in the cross-border payment process related to import-export. After both parties meet and start discussing payment terms, the exporter must thoroughly understand the capabilities and capacities of the importer.
Additionally, based on this information, the exporter should determine development directions and select the appropriate credit limits for the subsequent payment contract.
Conduct comprehensive credit assessments for new clients by reviewing their financial health, credit scores, and payment history. Setting appropriate credit limits helps mitigate risks and ensures responsible lending.
Define Payment Terms
Alongside checking and setting up payment limits for their clients to provide suitable products or services, the payment method is also crucial for expediting the payment process.
Clearly outline payment terms in contracts, specifying due dates, penalties for late payments, and any early payment discounts. Transparency in payment terms helps prevent misunderstandings and disputes.
2. Automate the Invoicing Process
Use E-Invoicing Systems
In today's digital era, where everything is oriented toward Big Data and its applications, e-invoicing is one such application. It allows you to issue invoices for goods from anywhere, at any time, as long as you have an internet connection.
Implement electronic invoicing systems to streamline the billing process. E-invoicing ensures accuracy, reduces errors, and speeds up the delivery of invoices, leading to quicker payments.
Moreover, the invoices you issue to the importer will have permanent legal value and can be used in courts worldwide as evidence if the importing company fails to pay the agreed fees as clearly stipulated in the contract between both parties.
The importing company also benefits, as the e-invoice serves as evidence in case the importer has paid in full but has not received the goods within the stipulated timeframe as specified in the contract.
Automated Reminders
Set up automated reminders to notify clients of upcoming due dates, overdue invoices, and payment acknowledgments. Regular reminders help keep payments on track.
3. Maintain Regular Communication
Build Relationships
In recent financial years, the world has entered a very challenging economic phase, with conflicts, wars, and global pandemics occurring more frequently.
Consequently, there may be times when your import clients encounter payment issues, which may not necessarily be an indication of their intent to default on payments.
For this reason, export companies should foster strong relationships with clients through regular communication. Understanding their payment processes and challenges can help in negotiating payment plans and ensuring timely payments.
Prompt Follow-Ups
Follow up promptly on overdue invoices. A friendly reminder shortly after the due date can prompt payment and show clients that you are attentive to their account.
Offer Flexible Payment Options
Multiple Payment Methods
Each country has different levels of payment technology development, guided by the varying development strategies of their respective Central Banks.
This requires businesses in these countries to comply with the payment regulations issued by their national payment regulatory authorities.
A prime example is Vietnam, where the government is making significant efforts to establish clear regulations and legal frameworks to support digital payment methods (particularly through QR codes, e-wallets, and digital banks). Meanwhile, the government has not yet provided clear regulations for payments involving cryptocurrency.
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Because of this, the export companies should provide various payment options, such as bank transfers, credit card payments, and digital wallets. Flexible payment methods make it easier for clients to pay on time.
Payment Plans
For clients facing financial difficulties, consider offering structured payment plans. This flexibility can help retain their business while ensuring you receive payments over time.
5. Leverage Technology and Analytics
Data Analytics
In export-import activities, exporters always seek to have a comprehensive overview of their import partners, including their payment history and the accounts they frequently use for transactions with previous partners.
Use analytics to monitor payment patterns and identify high-risk accounts. Predictive analytics can help you anticipate potential payment issues and take preemptive action.
Collection Software
Export companies should invest in robust collection management software that tracks invoices, automates reminders, and provides comprehensive reporting. Such tools can greatly enhance the efficiency of your collections process.
6. Implement a Dedicated Collections Team
Specialized Staff
This issue is indeed prevalent among export businesses. The lack of experienced and professional personnel can diminish the company's ability to effectively manage debts. This not only impacts the company's cash flow but also results in a loss of trust from customers.
A dedicated collections team can focus solely on managing receivables, ensuring timely follow-ups, and effective communication with clients. Their expertise can help resolve issues quickly and professionally.
Training and Development
A focus on training and developing personnel is crucial. The company may consider bolstering its workforce or providing training to existing staff to ensure they possess the necessary knowledge and skills to manage debt collection professionally.
Regular training for the collections team on best practices and negotiation techniques can improve their effectiveness and contribute to better collection rates.
Furthermore, utilizing technology and customer relationship management (CRM) systems can enhance debt collection processes and improve the monitoring of outstanding debts. This enables the company to gain a comprehensive overview of debt status and manage them more effectively.
7. Incentivize Early Payments
Discounts for Early Payment
Offer discounts for early payments to encourage clients to pay before the due date. This can improve cash flow and reduce the time spent on collections.
Loyalty Programs
Implement loyalty programs that reward clients for consistent on-time payments. This can enhance client satisfaction and foster long-term business relationships.
8. Legal Recourse and Collection Agencies
Legal Action
As a last resort, be prepared to take legal action against delinquent accounts. Ensure you have clear policies and legal support in place to handle such situations.
Collection Agencies
Partnering with professional collection agencies can be effective for recovering overdue payments. They have the expertise and resources to handle difficult cases, allowing you to focus on core business activities.
Conclusion Regarding Key Strategies for Maximizing Efficiency in B2B Collections
Efficient B2B collections are essential for maintaining a healthy cash flow and strong customer relationships. By implementing these strategies, businesses can streamline their collections process, reduce overdue accounts, and foster positive interactions with clients.
Embracing technology, proactive communication, and clear policies are key to achieving success in B2B collections.
This article was curated and authored by FinFan's market research and development team, alongside our marketing department.
About FinFan
FinFan is a cross-border embedded financial services company that focuses on mass disbursement, fund collection, card processing, IBAN, and digital APMs solutions, which can provide valuable input and integration on and for the same.
FinFan is already integrated with almost the world's well-known MTOs, PSPs, switch, and core fintech platforms such as Money Gram, Thunes, Qiwi, Remitly, World Remit, Bancore, PaySend, Terrapay, Ria Money Transfer (Euronet), Dlocal, Ripple, TripleA, FoMo Pay, Wings, etc.
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Dr. Tuyen Nguyen
Money Beyond Borders
