A young man sits facing an open laptop with a worried look on his face and one hand held to his head. The man has dark hair and stubble and he wears a green cardigan over a white T-shirt.
Poor collection practices can damage your cash flow and your company's growth. If payment issues go on long enough, it may be difficult to restabilize your business's finances. — Getty Images/AsiaVision

In business-to-business (B2B) customer relationships, failure to remit on-time payments can cause trouble for small businesses.

“One of the significant challenges of accepting and collecting payments as a B2B company is managing cash flow effectively,” said Paul Miller, Managing Partner and CPA at Miller & Co., LLP, who noted that overdue or extended payments can disrupt your company’s financial stability.

However, the right payment collection process can strengthen relationships while ensuring prompt payment is received, thereby improving cash flow and driving growth. In fact, about 70% of businesses that include detailed payment instructions on their invoices see better payment times.

Here’s what business owners should know about B2B collections and how to better ensure on-time payments from their clients.

[Read more: How to Set B2B Customer Payment Terms]

Common B2B debt collection mistakes

Disorganized or unclear B2B collection procedures can leave your business playing catch-up with customer payments, ultimately impacting your bottom line. Watch out for these common collection mistakes.

  • Poor communication. Misunderstandings are likely to arise when there is a lack of communication between B2B businesses and their customers. These misunderstandings may lead to missed or late payments and other unintentional violations of contract terms.
  • Lack of documentation. Without proper documentation of records, businesses likely won’t succeed in tracking client debts due to a lack of resources or disorganization. Therefore, it's best to implement a process early on for tracking all client communications, including contracts and invoices.
  • Failure to follow up. Sometimes, customers don’t realize their account is delinquent until they get a warning. Instead of waiting for late payments to come in, implement a reminder system to follow up with clients. Start with a more courteous approach and, if needed, gradually escalate to more assertive reminders.

[Read more: Accounts Receivable: How to Improve Your Chances of Getting Paid]

Strategies to improve your B2B collections

Before you consider hiring a collection agency for your B2B company and potentially damaging client relationships, take these proactive steps to improve your collections.

Be upfront about your payment terms

According to Miller, one of the best ways to improve collection is to clearly outline payment terms and expectations in your contracts and communicate them with your clients upfront. This includes transparency about any late fees that may apply to their invoices.

“Ensure clients are aware of penalties for late payments,” he added.

Be transparent and explicitly state the consequences customers will face for not making on-time payments.

Send invoices promptly

If your company bills clients in arrears (after goods or services are delivered), Miller advises sending out invoices promptly upon delivery.

“The sooner you send the invoice, the sooner you are likely to get paid,” he told CO—.

Remove barriers to payment

Provide B2B clients with up-to-date, easy payment solutions that accept multiple payment methods; a complicated process will only further de-incentivize and confuse customers. Offer payment plans to those who can’t pay in full — a partial payment is better than no payment at all, and doing so can increase goodwill.

Incentivize upfront or early payments

Consider offering early payment discounts to encourage clients to settle their invoices sooner, said Miller. Not only does this improve cash flow for your business, but it may also improve relationships with clients who want to save money.

Establish a follow-up process for late invoices

Implementing a systematic approach for following up on overdue payments can help your business stay on top of nonpaying clients.

“This might include reminder emails, phone calls, or escalation procedures as needed,” said Miller.

Establish a protocol for sending out reminders via specific channels at set time intervals, such as emailing after 30 days and then following up with a phone call after another 10 days.

Enforce penalties for late payments

Be transparent and explicitly state the consequences customers will face for not making on-time payments. Include the penalty amount, enforced deadlines, and the repercussions for nonpayment. While this won’t prevent all instances of late payment, it will hold customers accountable and generate compensation for your collection efforts.

Automate accounts receivable processes

Miller recommended using invoicing software that helps automate your accounts receivables process, including invoice generation and reminders for upcoming or overdue payments. Your software might also include self-service payment options, which provide easier ways for customers to quickly and efficiently make payments.

Review policies and processes regularly

Regularly reassess your policies to confirm they remain the best fit for your business. Look for areas where you could improve or revise your process, such as adjusting your billing cycle or offering more efficient invoice delivery.

[Read more: How to Reward Loyal B2B Customers]

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here.

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