Updated: Aug 28
In part 2 of “How to offer net payment terms to business buyers online”, we will focus on what is required to manage a buyer’s credit limit and buyer payments and collections.
My previous article covered assigning a credit limit to buyers, what you need to get right, and the key metrics to watch. The key takeaway of the article is that payment terms are a critical component of B2B transactions, and getting it right requires a real-time verification, credit- and fraud check of business buyers. Automating this process removes friction in the buying process and allows you to communicate to buyers they’ve been approved for payment terms before they start purchasing.
In part 2, we will focus on what is required to manage a buyer’s credit limit and manage buyer payments and collections.
Managing a buyer’s credit limit
Once you have approved a business buyer and assigned a credit limit, you need to manage that credit limit.
You need to check new transactions against a business buyer’s available credit limit in real-time and you need to place a hold on their available credit limit once the buyer has confirmed their purchase.
The available credit limit is the amount of credit that the buyer has not yet used. For example, if a buyer has a credit limit of €25,000 and they have €10,000 of open invoices, their available credit limit is €15,000. If the buyer then places a purchase for €5,000, a hold of €5,000 is placed on the buyer’s available credit limit, which then drops to €10,000.
After authorising a transaction and before shipping the order, you need to do a further fraud check, particularly around the shipping address. If the shipping address is different from the business's registered address, this might need to be investigated.
When the order has been shipped and the final invoice has been issued, you need to replace the hold on the buyer’s available credit limit and book the actual invoice amount against their available credit limit.
Should the buyer decide to return all or part of their order, this also needs to be reflected in a buyer’s available credit limit so that the buyer can re-use their available credit limit for further purchases.
Payments and collections
Once an invoice is due, you need to collect payment from the buyer. You need to remind them before and after an invoice due date that a payment is due.
You need to give the business buyer different payment options for paying their invoice. Businesses typically like to pay their invoices using a bank transfer, but there are other ways to do this. It could be a regular, manual bank transfer, but open banking account-to-account transfers are also increasingly popular, and of course, there are the SEPA Bank Transfer and SEPA Direct Debit.
Once a buyer has paid their invoice, the payment needs to be reconciled with and applied to your open invoices. This might be a straightforward process for most payments, but there could be cases where the buyer has paid too much or too little or did not add their invoice number to the transfer details, etc. This will make it hard to automate the reconciliation process.
If a buyer is not paying an invoice, whether this is because they do not have the money or because they do not want to pay, you need to go through a formal collections process, potentially involving a third-party debt collector.
If that is the case, you will need to understand how these collectors will treat your customers. Do they have a one-size-fits-all approach, or can they segment their communication and collections strategy depending on how important a buyer is to your business?
It may seem obvious, but getting this process right is crucial for the customer experience and ensuring you don’t increase the operational workload as your business grows. At Sprinque, we have built an end to end payments platform that enables you to offer payment terms to your buyers. By providing a credit limit at the buyer level, buyers are incentivised to return as they can continue purchasing against the set limit.
We are always keen to meet B2B merchants, platforms and marketplaces to learn how we can help them by going digital. Please reach out to us if you would like to discuss your needs and requirements at firstname.lastname@example.org.