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B2B Credit Management: What Is It?

Selling products or services to other businesses can be slightly more complex than selling to consumers. Many businesses will need to set up specialty accounts for their clients to handle large standing orders, extending lines of credit as needed. And as soon as you take a plunge into the waters of extending credit, you’ll need a strong management system to track payments and handle collections. This is why B2B credit management is an essential component of the accounts receivable process.

What is B2B credit management?

B2B credit management is a far-reaching term used in accounts receivable to describe the process of collecting payments between companies. Because payment processes can vary widely between businesses, the specific activities included in B2B credit management will depend on your industry. However, typical activities to manage include:

  • Managing cash flow

  • Approving customer credit applications

  • Establishing a credit policy

  • Setting up recurring card payments

  • Handling late payments

  • Dealing with customer defaults

Some businesses choose to handle this process in-house, while others will outsource to specialty B2B credit management companies. Mainstream accounting software also helps streamline the management process so you can ensure smoother payment collections.

Features of a B2B credit management system

There are several aspects of credit management to consider as you get started. Ask yourself the following questions before you start to compare B2B credit management companies.

  1. How will you assess customer credit risk? You’ll need to look at business credit ratings by pulling reports from the main credit agencies. Most businesses will also want to see a comprehensive application with financial details before making any decision.

  2. How will you extend credit? What will your limits be, and how will you apply these to new customers? B2B credit management involves setting deadlines and collecting payments as well. You need to define these terms in advance.

  3. How will customers access their accounts? It’s a good idea to set up an online portal where customers can interact with your business, check their accounts, and make online payments.

  4. How will you keep accounts secure? Comprehensive B2B credit risk management not only involves protecting your company from default, but also protecting your customers from fraud.

These are just a few of the examples of features to look for in any credit management system.

Establishing a credit policy for your business

We’ve mentioned the importance of creating your own credit policy above. This builds a strong foundation for any credit management system. Customers are most likely to make timely payments when they understand all terms and conditions clearly. Sit down with your management team to assess risk and establish:

  • Credit limits

  • Credit terms

  • How you will assess creditworthiness

  • How you will record transactions

  • Procedure for late payments and nonpayment

For small businesses that are new to the concept of extending credit, this might seem like a daunting process. Fortunately, there are plenty of outside tools that can help. For example, when assessing the creditworthiness of a new business client, you can access Dun & Bradstreet and Experian reports and look at their payment history.

Many businesses choose to outsource this part of the process to B2B credit management companies, who know how to access credit reports, phone references, and assess financial statements. A strong credit approval process helps prevent problems with nonpayment down the line.

How to make the most of B2B credit risk management

Putting a strong management system in place offers numerous benefits. It not only mitigates the inherent risk of extending credit to new clients, but also helps improve customer relations. You’ll ensure a steady cash flow with a streamlined payment collections process. It’s also helpful to analyze current market trends to stay on top of the latest collections, news and technology. All of this will help you to craft a stronger credit policy.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.

GoCardless is used by over 60,000 businesses around the world. Learn more about how you can improve payment processing at your business today.

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