The economic context in which European businesses operate has undergone noticeable changes over the past half decade. The covid years saw significantly disrupted supply chains. And whole sectors – including hotels, bars, restaurants and retail shops – were forced to shut down by government mandate. This went along with substantial stimulation measures and financial compensation for entrepreneurs who were not able to run their business as a result of these government measures. In the years after that, energy prices skyrocketed as the Ukraine war broke out. And after a few decades of relatively low inflation, there were a couple of years that saw double digit inflation figures in many European countries. This has put European businesses’ ability to pay their bills under pressure. As a result, it has impacted the cash flows of the businesses that were supposed to be on the receiving end of these transactions.
B2B debt collection
For this reason B2B debt collection (short for: business-to-business debt collection) has grown significantly in importance in many European countries. B2B is used as the opposite of Business-to-Consumer (B2C), by which is meant the businesses that cater directly to private citizens. B2B pertains to businesses that do business with other businesses. B2B debt collection has grown in importance among business leaders, as the European economic climate is testing the resilience of companies worldwide.
A recent study by the Dutch financial multinational Atradius reveals that, across all sectors, up to 30% of commercial invoices are paid too late or are even never paid at all. This marks a significant increase over the past decade. The increase in this late payment marker underscores the increased strain on corporate cash flows among European businesses. Factors that have contributed to this rise in late payments include tighter credit conditions, the effects of the supply chain disruptions that started during the covid years, and the economic uncertainty that started with the lockdowns, the rising inflation figures (including the rise in energy prices in particular in Europe), and in recent years also lower economic growth figures. All of this contributes to extended payment cycles.
For many entrepreneurs and for people working in these businesses, and especially SMEs (small and medium-sized enterprises), such challenges are particularly acute. Many of these smaller businesses (as compared to multinationals and large domestic organisations) struggle to find a balance between the need to pursue overdue payments on the one hand and the need to not unnecessarily harm valuable commercial relationships on the other, especially when these are long term relationships or when they concern large amounts of money. B2B debt collection can pertain to large sums of money. As a result, getting debt collection in a B2B context right often involves knowledge of the nitty gritty of negotiation intricacies and knowledge of the legal system. When dealing with overseas debts owed by other businesses, B2B debt collection also requires knowledge of the host country. And oftentimes command of the local languages can make a significant difference in the ease with which foreign debts are collected.
Evolving Practices in B2B Debt Collection and Recovery
Successful debt collection – particularly in a B2B context – relies ever more on a well thought out and delicate approach. Effective recovery of B2B debts requires diligent follow-up. All the steps taken and all the attempts at contacting the debtor by various means need to be documented well. This includes steps taken by the business itself before a debt collection agency becomes involved. These are prerequisites for legal recourse to result in effective recovery of the outstanding b2b debts. There are marked differences here between B2C (business-to-consumer) and B2B debt collection. Firstly, the amounts that the disputes pertain to are often much higher in B2B transactions. This also increases the risk that disputes can escalate legally. Legal proceedings further increase the costs involved with B2B Debt Collection. This also increases the need for professionalism and a delicate approach that focuses on an understanding attitude and sensitivity to client’s needs. This, among others, has to do with the fact that businesses often depend on repeat transactions and ongoing partnerships, which over time involve large sums of money.
For this reason many businesses resort to B2B Collection Agencies in an attempt to attain maximum recovery rates while minimising the effect it has on the relationships with their customers. With the distinction between B2C and B2B Debt Collection being an important first factor in choosing an agency, there are several other factors that play a role in choosing an agency. Some B2B debts pertain to businesses, both of which are located in the same country. This requires vastly different competences on the part of the B2B collection agency compared to cross-border debts. For cross-border debts, many businesses choose a large B2B Collection Agency with offices in multiple countries. Another factor that often plays a role is whether to do business with an originally European or Western firm vis-à-vis the choice for say a player that was founded in Asia or in other parts of the world. Many European entrepreneurs prefer a multinational debt collection firm like Atradius Collections or JDR Debt Collection, which were both founded in Western Europe and specialise in B2B debt collection.
Technological innovation in B2B Debt Collection sector
Human services tend to be expensive. This holds especially true in some European economies, especially in Switzerland, the Scandinavian countries and the Benelux countries, that have some of the highest hourly wages in the world. And also in these countries, much like in the rest of the world, high quality services tend to carry an even higher price tag.
some cases, these prices are fully justified by the value they bring the entrepreneur. When considering that a B2B debt collection agency like Atradius Collections or JDR Debt Collection can make the difference between getting paid or not getting paid, the amount paid for debt collection is often negligible in the grander scheme of things. The ability to continue doing business with a customer is also worth a lot of money. This also justifies paying for this. And choosing a high quality collection agency like Atradius Collections rather than a less experienced agency can improve your chances of retaining your customer.
AR automation software
For several years, a new trend has been underway in the B2B Debt Collection sector that seeks to lower the cost of collecting debts while also making the life of entrepreneurs and finance professionals significantly easier. AR automation software is the name of the game. This technological innovation automates tasks that until recently needed to be done by hand. Some of these AR automation software solutions differentiate from others by their price tag. Atradius’ Credit-IQ is an example of this. There are also other more feature-rich competitors, including Invoiced and Quadient AR. These competing AR automation software solutions also carry a higher price tag. For many SMEs the benefits accrued from the use of this AR software are most evident when the costs of the software itself does not rise to too high of levels. Multinationals and other large domestic organisations often find that the more sophisticated software packages justify the price tag. Due to the size of their operations, this larger price tag often seems much smaller in comparison.
These advancements in AR automation software in the B2B debt collection sector have reshaped the business landscape. A lot of repetitive tasks that entrepreneurs had to do by themselves (or that they used to have employees of theirs do) can now be carried out automatically by these AR automation software packages. Most of these platforms provide real-time invoice tracking. This is true for both more affordable solutions like Atradius’ Credit-IQ as well as for more expensive solutions like Invoiced and Quadient. Another common feature is the ability to have the software automatically send out payment reminders. And these AR automation solutions offer insight into the state of affairs in terms of the outstanding amounts. Almost all of the tools allow you to download reports. Several of them also allow you as a user real time insight. A better insight into the state of affairs can allow entrepreneurs and finance professionals to exert greater control. They allow companies to identify potential payment delays in an early stage and to act swiftly based on these early insights.
Several AR automation software solutions, including Atradius Collections’ Credit-IQ, but also Versapay, BlackLine, HighRadius and Quadient AR allow for integration of AR automation software with their extant software landscape. Most of these solutions offer support for large, well-known products. Sometimes there is also the possibility to add support for smaller, niche or custom-made software solutions. The price tag of these software packages does not necessarily say anything about the ability to integrate with non-major Enterprise Resource Planning (ERP) and accounting software.
The Role of Technology in Optimizing Collections
This emergence of AR automation software solutions that automate the sending out of reminders and that monitor payment behaviour automatically marks a significant shift in the B2B debt collection landscape. How companies handle overdue invoices has changed drastically. These AR automation software innovations help companies save time, by reducing the overall administrative burden associated with unpaid invoices. This in itself is good for the company’s bottom line. This puts businesses in a stronger position to allocate more resources towards core operations. The increase in working capital allows businesses to invest or to reinvest in their own business.
Navigating Legal and Ethical Complexities
While this article lays out the main dynamics of B2B debt collection that make sense to a layman or woman, the profession itself is full of intricacies. Collecting debts, especially in a B2B context, is not without its challenges. The legal and compliance environment plays a role. When dealing with debtors in one’s own country, a B2B Debt Collection agency that operates merely within the country’s borders probably suffices. When dealing with cross-border debts, a multinational debt collection agency like Atradius Collections or JDR Debt Collection may be a more suitable option. These agencies are familiar with the legal and compliance context of the host country: this is the country in which the debtor is located or the legal system under which both parties have contractually agreed to handle disputes. Professional compliance with these legal and regulatory norms can make a significant difference when a debt has to be pursued by legal means. The professional documentation of all the steps that were taken is also very important in this regard.
The existence of a language barrier can also play a major role in B2B debt collection. Firms like Atradius Collections or JDR Debt Collection also have offices in multiple countries with staff members who speak various languages. This can make a difference when the debtor does not speak English well enough or when he or she does not speak the same language that the creditor speaks.
There are moral and ethical considerations. And it is important to guard the firm’s reputation. When a company hires a debt collection agency that neglects these aspects, this could jeopardise the business relationships. The client may then come to view the creditor as a selfish, immoral, poorly-adjusted party that it would refuse to do business with for that reason.
Strategic Approaches to B2B Debt Collection for Sustained Growth
As economic headwinds in Europe persist and the outlook is not positive in the sense that this is expected to improve significantly over the next couple of years, the uptake of professional B2B debt collection services by European businesses increasingly becomes part of their business strategy. Besides the use of professional human B2B debt collection services, the incorporation of AR automation software also increasingly plays a major role in businesses’ approach to debt collection in the B2B segment. Similar trends can also be seen in the B2C segment, but given the large amounts that are involved in the B2B segment the B2C strategy often takes the back seat to the B2B strategy.
For owners of SMEs and their employees, who always need to juggle multiple responsibilities, and for enterprises looking to scale up it is important to stay up to date with these trends. Especially for SMEs, the use of AR automation software can significantly improve the efficiency of their operations. This is particularly true for businesses that have lots of customers.
