No matter the type or size of your business, accounts receivable and collections is a valuable part of your operations and cash flow. B2B (business-to-business) accounts receivable and collections, however, is very different than B2C (business-to-consumer) for a number of reasons. In this post, we will uncover the differences between these two types of businesses and how their receivables and collections processes are different.
What is B2B accounts receivable and collections?
What Does B2B Mean?
The term B2B was likely coined by the digital marketing industry in order to differentiate from B2C marketing. When a business is marketing to another business, for instance, the goal is to attract decision-makers such as directors, management or C-level executives. These business relationships are long-lasting, typically around a project or an on-going retainer, and may evolve into business partnerships. Any B2B marketing or sales activities center around the recognition of synergy and trust so that the business relationship is beneficial to both parties.
A business-to-consumer relationship, therefore, is short and/or transactional, such as the relationship between a utility company and their customers or a store and its shoppers. Marketing to a consumer involves convincing them that they need a product or service. It could also be said that B2C marketing is more emotion-driven compared to the logical problem-solving of B2B marketing.
How are B2B & B2C Accounts Receivables Different?
Generally, the differences come down to who is being billed. A B2C business would have a receivables department if the customer was paying via credit, financing or billed regularly for using a monthly service. When the consumer doesn't pay on time, the account is turned over to the internal collections department and the service is disconnected, the tenant evicted or the product repossessed. The business' collections department may also report the customer to the credit bureaus, affecting their consumer credit report.
In a B2B business, the other business' accounts payable department is responsible for ensuring the invoice gets paid on time. The "customer" in this case is another business who has been issued credit or is being invoiced regularly for particular goods or services. Manufacturers, as an example, rely on suppliers to deliver the goods they need to create other products. Businesses who sell software platforms or SaaS (software-as-a-service) to other businesses are being paid with regularity for their product or service. Accounts receivable management will have a collections process for when customers stop paying invoices or their credit runs out, including turning the account over to first party (internal) collections. Services can also be stopped until the account is brought current.
What's the Difference between B2B & B2C Collections?
The more dramatic differences are revealed during the debt collections process. As mentioned previously, a consumer who is paying their bills late or not at all can be reported to the credit bureaus after a certain amount of time. If not resolved, their accounts typically move from internal collections to a consumer collections agency who can then use collection tactics to help get customer accounts paid up. The collections agency, however, must abide by certain consumer-protecting legislation such as the Fair Debt Collections Practices Act (FDCPA) that limits when the agency can call, how they're able to contact the consumers and limits on other abusive tactics.
For B2B debt collections, the process and acceptable collections tactics are different. To begin with, a B2B business may be out a substantially larger amount of money if they're not paid on time. First party and third party collections will include demand for payment via phone calls, emails and letters plus an investigation of the business that isn't limited by the FDCPA.
The business relationship is one of the most important differences between B2B and B2C collections. Because of the length of time and resources devoted to a B2B relationship, the collections process has to be handled differently and with respect to the relationship. A debt collections agency that works specifically with B2B businesses will understand this. This is why Enterprise Recovery exists.
If your business has a need for a B2B-specific debt collections agency, Enterprise Recovery can help.
Click to learn more about how B2B Collections works and, if we're not able to collect, you won't pay a dime.