Newsletter

Blog Post

Finance

Customer Credit: Great For Them But A Headache For You 

Customer Credit: Great For Them But A Headache For You

In most B2B industries, trade credit is common practice. Customers come in expecting a certain amount of credit extended to them along with a healthy number of days before an invoice must be paid. Trying to buck that trend can mean missing out on growth.

For B2B owners, customer credit has a number of negative side effects. While customers certainly enjoy their credit terms, owners extending credit are faced with the following impediments:

Credit Applications – Processing credit applications take time and mean pulling resources from other areas of the business to complete the task. A lot goes into processing credit applications, including background checks, checking references, verifying and analyzing a customer’s company financials, determining risk and creditworthiness, what terms to extend, and more. After all of that, the customer may come back and request better terms. Now you’re in negotiations.

Determining Creditworthiness  – At the end of the day, credit terms are based on creditworthiness. There’s no silver bullet for how much credit a customer should receive. However, the more applications you process, the better you get at determining creditworthiness. Even when you think you’ve got it right, a customer may reject your terms, saying they received much better terms at company X. Now you have to negotiate with the customer or defend your terms.

Waiting For Payment – One of the biggest drawbacks of extending customer credit is waiting to be paid. How long you must wait is often dictated by industry standards. Good customers with a great payment history may have the best terms and take even longer to pay. What does this mean for the business owner? Cash flow management must be spot on. Otherwise, money ends up leaving the company before new money comes in, creating a hole in working capital. This can lead to an inability to pay suppliers. If the issue isn’t fixed soon, the situation can spiral downward with great speed, eventually leading to bankruptcy.

Collections  – Collections is another area of A/R that can take up a lot of resources. Collections start simple with sending out a  due payment notification. That’s followed by another some days later. After three months of no reply from the customer, it becomes clear the situation has taken a turn for the worse – time to initiate collections.

Not only is collections time consuming, but it is costly, especially if you have to bring in an attorney.

There is a way to get around all of the above, and that’s through Outsourced A/R.

Removing The Chains That Bind You: Fully Automated A/R

As mentioned above, for a company that is doing all of their A/R in-house, it can be a drain on resources and cash. For most companies, A/R is not a core competency. In that case, outsourcing is usually a more efficient solution vs. in-house processing. Automated, outsourced A/R is about more than just offloading your A/R processing onto another company. It means removing much of the human element.

People tend to make mistakes, even with repetitive tasks. Software that is programmed to complete a specific task will perform that task the same way every time, eliminating mistakes. It will also complete tasks much faster than a human. The end result is increased productivity.

Let’s compare some of the A/R inefficiencies mentioned in the previous section to outsourced, automated A/R.

Credit Approval – Compared to manual processing, automated credit approval is light-years ahead in terms of productivity. Take Apruve’s credit network for approving customers in real-time. Not only is the approval process fully automated but you’ll be paid within 24 hours instead of 30+ days. The approval process determines each customers credit line as well.

From Burden To Growth Engine – Moving A/R off your plate and into an automated service, completely removes the burden of processing invoices, sending notices, collections, and credit applications. With a more efficient A/R, you’ll begin seeing growth such as 3.3X more line items per order and 2.2X more frequency in orders.

Fully Outsourced A/R – When we say outsourced A/R, we mean everything: From buyer credit approval through invoicing, collections and payment, to real-time customer credit approval. Outsourcing doesn’t mean losing your branding either. Apruve’s outsourced A/R can customize invoices and notices to include your branding, creating a seamless transition for customers.

Offload Customer Credit Financial Risk

Another benefit of outsourcing your A/R is a reduction in credit financial risk.  Because the credit approval process is automated and thorough, the outsourcing company assumes all of the risks. While not all companies may assume credit financial risk, Apruve does.

Online Access For You And Your Customers

A big part of making outsourced A/R a success is online access for both you and your customers. Online access means potential customers can fill out credit applications and existing customers can pay for orders online and log into a portal to view their order history, credit terms, outstanding invoices, and even request an increase in credit. Such access moves A/R processing from your company to the customer. Any gaps in processing are filled in by the software. For example, after a customer completes their order, your eCommerce platform processes and records the order into your accounting software.

Additionally, as the business owner, you’ll be able to log into a merchant portal and view all outstanding invoices, payment histories, and view credit terms for each customer. You’ll also be able to view analytics to help you determine trends and easily view areas that are performing well or underperforming.

Businesses that want to stay ahead of their competition need all of the resources they can draw on. However, if your company is running its own in-house A/R department, you’re leaving money on the table. As we’ve seen, in-house A/R requires a lot and gives back little. Instead, outsource your A/R and change it from a resource draw to a growth engine. You’ll immediately realize efficiencies in operations and have new insights into parts of your business that were previously hidden.

Related posts