For any B2B company who works with customers in the United States, Canada, Mexico, and Brazil (the America’s), there are some things you need to be aware of when it comes to the current state of B2B accounts receivable. According to a September 2014 study by Atradius, companies in the America’s continue to struggle to get paid on time despite their best efforts. For example, the study indicated that if you still have not collected payment 90 days past the due date, you’ve only got about a 50/50 chance of collecting the invoice in full. Additional findings from the survey are below as well as some tips to help you make sure you’re on the positive side of that 50/50 chance.
According to the September 2014 Atradius Payment Practices Barometer, the current state of B2B accounts receivable in companies in Brazil, Canada, Mexico, and the United States looks like this:
- Approximately 52% of the value of invoices 90 days past due were written off as uncollectable in the America’s, that’s roughly one in every two invoices! This is compared to the average of 35% for the same study conducted in Europe, about one in every three invoices.
- Only 50% of businesses check buyer credit worthiness, request secure forms of payment, or both.
- 81.5% of companies report employing credit management policies to mitigate trade risks.
- Average payment terms for the America’s were 28 days and the average Days Sales Outstanding was 48 days.
- 38.4% of all B2B invoices in the Americas are not paid on time.
- Nearly one third of the survey respondents said that maintaining sufficient cash flow this year has been the greatest challenge to their business’ profitability.
The Regional Director of Atradius commented on the findings saying, “The economy may be showing signs of recovery but late payments, defaults and business failures remain facts of life. The survey results simply underline the need for all businesses to be vigilant in their credit management and to protect cash flow and profitability against non-payment.”
HOW TO AVOID BECOMING ONE OF THESE STATISTICS
Take a look at your current B2B accounts receivable process, even if you think you are taking the necessary precautions and have the right policies in place. For example, the study shows that about half of the B2B companies in the America’s are putting forth an effort to check customer credit worthiness, but there is more that can be done than a simple credit check, for example:
- Make sure you are setting appropriate credit limits.
- Check creditworthiness regularly. Terms and limits should never be set in stone since your customers financial situation will change over time.
- Don’t rely on credit reports alone. While credit reports and scores are helpful, using past customer payment patterns is the best indicator of future behavior. Further, tracking these patterns will help you identify any changes that might signal a potential problem. For example, a customer who always paid on time who begins to pay later and later might be falling into financial distress and you’ll want to reevaluate their terms and limits before things get out of hand.
- Make sure to require all new customer to fill out a credit application, and existing customers too if they ask for a change in their limit or terms.
The study also noted that 81.5% of companies reported that they do have credit management policies in place, that’s an impressive percentage, but just because you have a credit policy, doesn’t mean it is working.
Some companies do not update their policies frequently enough for them to remain an effective document. A recent survey from Credit Today pointed out that it is considered a best practice to update credit policies and process manuals one each year, but their study revealed or half of companies do not follow it and utilize out-of-date, therefore useless, policies. The results of the study showed:
- 41% update their policy once a year.
- 19% update their manual every two years.
- 13% said every 3 years.
- 15% reported they only change it “when they need to.”
- 12% said “other” which really makes you wonder when the last update was.
Having a policy and putting it into practice are two different things. How can you be sure your collectors are following the many steps laid out in your invoice collection plan? Many times they may want to, but with so many steps they don’t have time to take all of them for each and every invoice. An accounts receivable management system can help you change that by allowing you to build your policies and procedures into the software itself, so collectors and sales reps can quickly, easily, and consistently follow the plan CFO’s and credit managers have so carefully laid out.
Between the cost of the time and money put into pursuing collection of invoice and bad debt write-offs, the impact of late and especially unpaid invoices can have a serious impact on the cash flow for a business. Without access to cash, how will you grow? Accounts receivable management software is a proven tool to help B2B companies protect against late payment and delinquencies while also reducing DSO, improving cash flow, and helping them offer more competitive payment terms.