B2B debt collection: Challenges, how to automate, and best practices

Every business eventually faces the challenge of unpaid invoices:

• Your aging report flashes a daunting $2.3 million USD past due by more than 60 days
• Sales implores you not to alienate valuable clients
• Your controller is buried under the weight of manual follow-ups

You're left to ponder if that collection agency's 25% fee is justifiable. 

What many companies don't realize is the hidden cost of inaction: spending 10 hours chasing a $10,000 USD invoice can easily cost $500 USD to $750 USD, a significant 5 to 7.5% in overhead. 

This article will provide specific, implementable frameworks and real numbers, moving beyond generic best practices to help you navigate the complexities of B2B debt collection effectively.

Click here to be taken down to our section with templates for payment plan agreements and communication for payment resolution. 

What is B2B debt collection, and why is it different from B2C?

B2B (business-to-business) debt collection is the process of recovering money owed by businesses for goods or services delivered on credit.

Unlike B2C (business-to-consumer) collections, which typically involve smaller, one-off transactions, B2B invoices are significantly larger, averaging $6,420 USD compared to $132 USD for B2C, with payment terms extending 30 to 90 days. 

The complexity stems from multiple stakeholders, intricate approval chains, procurement processes, and accounting cycles that impact payment.

Effective B2B collection prioritizes problem-solving and partnership over mere enforcement and compliance, aiming to preserve valuable business relationships.

The real challenges of B2B debt collection

Navigating B2B debt collection is a complex dance between immediate financial needs and long-term business relationships. Unlike B2C collections, where the focus is often on immediate recovery, B2B requires a delicate balance.

The tension: Payment now versus future contracts

The core dilemma in B2B collections is the inherent tension between needing payment today and preserving the client relationship for next quarter's contract.

Aggressive tactics might secure immediate payment but risk alienating a valuable client, while a lenient approach can lead to ballooning DSO.

Collections as a “side job”

Many companies mistakenly relegate collections to someone's "side job," often an overworked accountant or sales professional. This approach rarely works.

Effective B2B debt collection demands either dedicated internal resources, robust automation, or strategic outsourcing. Without a focused effort, invoices age in neglect, impacting cash flow.

Disconnected systems

The average company juggles 4-6 disconnected systems for sales, invoicing, accounting, and customer relationship management. Invoices often fall through the cracks, aging unseen in the gaps between these disparate platforms.

This lack of integration leads to inefficiencies, missed follow-ups, and a fragmented view of the accounts receivable landscape.

Scaling challenges

What worked effectively at $1 million USD in revenue often breaks down at $10 million USD. Many businesses don't realize their collection processes are inadequate until their DSO has significantly ballooned.

Manual, ad-hoc methods become unsustainable as transaction volume and complexity increase.

Buyer's internal processes

B2B payments frequently follow the buyer's internal approval processes rather than the seller's stated payment terms. A single delay in the buyer's procurement or accounting department can cascade, impacting payment for multiple invoices and significantly extending the collection cycle.

Interstate commerce and legal complexity

Operating across state lines introduces a layer of legal complexity. What's legal in California might violate Texas law, particularly concerning collection practices and interest accrual.

Interstate commerce multiplies the regulatory burden, requiring a nuanced understanding of diverse legal frameworks.

Incomplete metrics

Most companies primarily track DSO, which provides a limited view of collection effectiveness. Critical metrics like collection cost, recovery rates by age bucket, and the impact on client relationship retention are often overlooked.

A holistic view is essential for optimizing collection strategies and ensuring long-term business health.

How B2B collections work (timeline and where it breaks)

At each stage of the B2B collections timeline, a critical breakdown point can derail the process.

Day 0-30: Invoice sent, everything seems fine

During this period, the invoice has been issued, and payment is expected within the agreed terms. Ideally, a proactive accounts receivable system ensures the invoice reaches the correct contact and that there are no immediate disputes.

Breakdown points:

• Incorrect invoicing: The invoice might have errors, be sent to the wrong department, or lack necessary purchase order numbers, causing immediate delays.
• Lack of initial communication: No confirmation that the invoice was received or is being processed.
  
  

Day 31-45: First signs of trouble. Gentle reminders, "checking in" emails

As the due date passes, the first gentle reminders are sent. These are typically automated emails or polite calls "checking in" on the invoice status. The goal is to prompt payment without appearing aggressive.

Breakdown points:

• No process for overdue invoices: Companies often lack a clear, automated workflow for sending reminders, relying on manual checks that easily get missed.
• Generic communication: Reminders are not personalized, leading to them being ignored or lost.
  
  

Day 46-60: Escalation begins. Accounting-to-accounting contact, payment promises

At this stage, more direct contact begins, often involving accounting teams from both sides. Payment promises might be made, and the reason for the delay is sought.

Breakdown points:

• Inconsistent escalation: No defined criteria for when to escalate or who should be involved, leading to ad-hoc approaches.
• Lack of follow-through on promises: Promises are made but not documented or tracked, making it difficult to hold the client accountable.
  
  

Day 61-90: Serious concern. Management involved, relationship strain begins

As the debt ages, management involvement becomes necessary. The financial impact is significant, and the client relationship begins to show signs of strain due to persistent follow-ups.

Breakdown points:

• Unclear ownership: No single person or department is clearly responsible for escalated collections, leading to miscommunication and delayed action.
• Fear of damaging relationships: Reluctance from sales or account managers to push too hard, prioritizing future deals over current payment.
  
  

Day 91-120: Crisis mode. Legal threats considered, agency evaluation starts

This is a critical period where the likelihood of full recovery without drastic measures decreases significantly. Legal action or engaging a third-party collection agency is actively considered.

Breakdown points:

• No documentation: A lack of clear, consistent records of communication and agreements makes legal action difficult.
• Delayed decision-making: Procrastination in deciding on legal action or outsourcing leads to further deterioration of recovery prospects.
  
  

Day 120+: Write-off territory. Recovery rates plummet, legal action likely

Beyond 120 days, the invoice is often considered for write-off, and recovery rates plummet. Legal action becomes more probable, but even then, full recovery is rare and costly.

Breakdown points:

• High collection costs: The cost of recovery (legal fees, agency commissions) often outweighs the potential payment.
• Impact on financial statements: Uncollected debt severely impacts cash flow and profitability, potentially leading to write-offs that damage financial health.
  
  

How to improve your B2B collections process

Implementing the right strategies can transform your B2B debt collection from a reactive headache into a proactive, efficient process that safeguards your cash flow and preserves vital client relationships.

Start with segmentation (not all receivables are equal)

Not all outstanding invoices warrant the same collection approach. Segmenting your accounts receivable enables a more strategic and efficient process.

Consider categorizing accounts based on factors like invoice value, client relationship, and payment history.

Here's a framework for categorizing accounts and their corresponding strategies:

Build your escalation framework with timelines

A clear, predefined escalation framework with specific timelines is crucial for effective B2B debt collection. This ensures consistency, reduces delays, and guides your team on when and how to escalate.

Here are specific escalation steps you can implement:

• Pre-due reminder with payment link (7 days before due date): A polite, automated email with the invoice attached and a direct link for payment. This simple step can increase on-time payments by up to 23%.
  
  
• Due date confirmation (on due date): A brief email confirming the due date has arrived and offering assistance if any issues prevent payment. This also serves as a subtle reminder.
  
  
• Friendly check-in (3-5 days after due date): A gentle, automated email or call assuming an oversight. Offer help if there are any problems with the invoice or payment process.
  
  
• Manager escalation (15-20 days after due date): An email or call from an AR manager or senior team member, emphasizing the importance of the relationship and offering to work together to find a solution.
  
  
• Final internal attempt (30-45 days after due date): A firm communication (email and/or call) from a senior finance leader, stating a specific deadline for payment before further action is considered (e.g., holds on future services, referral to collections). Document all communication meticulously.

Use automation to improve collection efficiency

Automation is a game-changer for B2B collections, transforming a reactive, manual process into a proactive, streamlined operation.

Accounts receivable automation software can significantly improve efficiency by automating routine tasks, improving communication, and providing better visibility into your receivables.

Good AR software can connect natively with your accounting tool (like QuickBooks, Xero, or SAP), enabling seamless data flow between invoicing, payment, and collection processes.

This integration ensures that customer data, invoice details, and payment statuses are always up-to-date, preventing invoices from falling through the cracks due to disconnected systems. 

Automated workflows can trigger reminders, assign tasks to your team, and even generate personalized communication based on predefined rules, freeing up your team to focus on more complex cases and relationship and account management.

Measure what matters (beyond DSO)

While DSO is a common metric, it provides an incomplete picture of your collection effectiveness. To truly optimize your B2B collections, you need to track a broader set of key performance indicators that reflect efficiency, cost, and client retention.

Here are crucial KPIs that genuinely improve collections:

• Collection cost per dollar: (Hours × Rate) ÷ Amount collected. This measures the efficiency of your collection efforts. Target under $0.05 USD.
  
  
• Recovery rate by age bucket: Track the percentage of invoices recovered based on how old they are. Remember: the longer an invoice remains unpaid, the less likely it is to be collected. Here’s the data-backed benchmarks:
  • 1–30 days overdue: Businesses can still recover around 90–98% of outstanding invoices during this period, based on data from the Commercial Law League of America (CLLA).
    
    
  • 31–60 days overdue: Once an invoice passes the 30-day mark, recovery rates typically drop to 75–85%, according to research from ACA International and Federal Reserve data.
    
    
  • 61–90 days overdue: After two to three months, the likelihood of collection decreases further to about 50–70%, as noted by Kaulkin Ginsberg and the Credit Research Foundation.
    
    
  • 91–120 days overdue: By the fourth month, recovery rates usually fall to 30–50%, per the Atradius Payment Practices Barometer.
    
    
  • 121–180 days overdue: At this stage, companies recover only 15–30% of the amount owed, according to PwC’s Working Capital Studies.
    
    
  • 181–360 days overdue: Beyond six months, recovery becomes increasingly difficult, with average rates sinking to 5–15%, supported by findings from the CLLA and ABC-Amega.
    
    
• Percentage of commitments that become payments: This measures the effectiveness of your team's communication and negotiation skills. Track how often a client's promise to pay translates into actual payment.
• First-call resolution (FCR) rate: The percentage of collection issues or disputes resolved during the initial contact. Problems solved immediately lead to payments that are 23% faster.
• Client retention post-collection: Are you retaining clients after a collection effort? This indicates whether your collection process balances recovery with relationship preservation.
• Percentage of AR that goes to collection efforts: The portion of your total accounts receivable that requires active collection efforts (beyond automated reminders). This figure should ideally be under 0.5%.
  
  

Automate your B2B collections process

Automating your B2B collections process doesn't mean sacrificing the human touch. It means empowering your team to focus on high-value interactions while technology handles the repetitive tasks. The goal is to create a seamless, efficient workflow that encourages timely payments without alienating valuable clients.

Design automation that maintains human touch

The key to successful automation in B2B collections is thoughtful design. Your automated sequences should feel personal and empathetic, guiding clients toward payment rather than demanding it. 

This involves more than just setting generic email templates. It means leveraging data to tailor communications, coordinating across multiple channels, and ensuring that human intervention is strategically applied when it truly matters.

Connect existing tools to AR software

The first step in effective automation is integrating your disparate systems. Much of the crucial data for collections, tomer information, invoice details, payment history,  in your CRM, accounting software, and invoicing platforms.

A robust accounts receivable automation software, like Chaser, acts as the central hub, connecting these existing tools. 

This seamless data flow ensures that your collection efforts are based on the most accurate and up-to-date information, preventing missed follow-ups or miscommunications due to fragmented data.

Chaser, for example, integrates with popular accounting systems, allowing for automated reconciliation and real-time visibility into your accounts receivable.

Design automated sequences that feel personal

Once integrated, you can design automated sequences that are both efficient and personable. These sequences can include:

• Pre-due reminders: Automated, polite emails sent days before the invoice is due, offering a payment link and ensuring the client has all necessary information.
  
  
• Multi-channel coordination: Beyond emails, consider incorporating SMS messages for urgent reminders or prompts for phone calls. Automation can also create tasks for your team to make a personalized call when an invoice reaches a certain age.
  
  
• Personalized messaging: Use dynamic fields to include client names, specific invoice numbers, and even past communication history to make each message feel tailored.
  
  

Implement an A/B testing framework

To continually optimize your automated communications, implement an A/B testing framework. Experiment with:

• Subject lines: Test different hooks to improve open rates.
  
  
• Send times: Determine the optimal time of day or week for your clients to receive reminders.
  
  
• Sender names: See if a specific team member's name or a departmental email address yields better results.
  
  
• Message length and tone: Test concise messages versus more detailed ones, and a firmer tone versus a more empathetic one.

This data-driven approach allows you to refine your sequences for maximum effectiveness.

Streamline response handling

Effective automation also includes smart response handling. Your AR software should be able to:

• Send automated acknowledgments: Confirm receipt of payments or inquiries.
  
  
• Trigger payment plans: If a client requests one, the system can automatically send a proposal template or flag it for review by your team.
  
  
• Escalate disputes: If a client raises a dispute, the system can automatically route it to the appropriate internal department for resolution, ensuring it doesn't get lost in the collection queue.

By leveraging an AR automation tool like Chaser, you can transform your B2B collections process from a manual burden into a strategic asset, improving cash flow and strengthening client relationships.

When should you outsource your collections?

Outsourcing B2B collections can be a strategic move, but it's crucial to understand when it makes financial and operational sense.

Direct and indirect costs of in-house collections

The perceived savings of keeping collections in-house often overlook significant direct and indirect costs. These include:

• Collector salary: The base pay for your accounts receivable specialist or collector.
  
  
• Benefits: Add approximately 30% of salary for health insurance, retirement contributions, and other benefits.
  
  
• Training: Ongoing education for collection best practices, legal compliance, and system usage.
  
  
• Management time: The hours spent by managers overseeing collection efforts and resolving escalated issues.
  
  
• Systems: Costs associated with AR automation software, CRM, and accounting system licenses.
  
  
• Office space: The overhead for physical space dedicated to your collection team.
  
  
• Telecommunications: Phone lines, internet, and other communication tools.
  
  
• Legal consultation: Fees for advice on complex cases or compliance.
  
  

Clear criteria for outsourcing decisions

Consider outsourcing your collections if:

• Volume thresholds are met: Your business has over $2 million USD in receivables aged 60+ days, indicating a significant and persistent collection challenge.
  
  
• Internal cost exceeds 15% of invoice value: If your calculated in-house collection cost (as a percentage of the amount collected) consistently goes above 15% of the invoice value, outsourcing may be more cost-effective.
  
  
• No dedicated collector and AR over $500k USD: Your accounts receivable is substantial ($500,000+ USD) but you lack a dedicated, full-time collections specialist.
  
  
• Specialized needs arise: You require international collections expertise, anticipate legal action, or skip tracing services to locate unresponsive debtors.
  
  
• Relationships are already damaged: The client relationship is beyond repair, and there's no expectation of future business, making a firm collection approach via an agency less risky.
  
  

Best practices for B2B collections

Implementing these best practices can transform your B2B debt collection process from a source of stress into a strategic advantage, improving cash flow while maintaining valuable client relationships.

Communication strategies that preserve relationships

Effective B2B debt collection hinges on communication that fosters partnership rather than confrontation. Instead of accusatory language like "You owe us money," lead with collaborative phrases such as "Let's solve this together." This frames the discussion around finding a mutual solution.

When discussing payments, use assumptive closes to lead the conversation positively. For example, instead of asking, "When will you pay?" propose, "We anticipate payment processing on [date]." This subtle shift encourages compliance.

Always reference the specific value provided, rather than just an invoice number. Mentioning "The 500 units delivered in March" (rather than "Invoice #12345") connects the payment directly to the goods or services received, making the request more tangible.

Finally, offer multiple options for resolution. Propose solutions like payment plans, partial payments, or extended terms. This flexibility demonstrates a willingness to work with the client while still pursuing the owed amount.

Documentation requirements that protect you legally

Thorough documentation is your best legal defense in B2B collections. Track every touchpoint meticulously, including the date, time, person contacted, communication channel (email, phone), the outcome of the interaction, and the next steps agreed upon.

Crucially, email confirmation of every verbal commitment is essential. If a client promises payment or agrees to a payment plan over the phone, send a follow-up email summarizing the discussion and the agreed terms.

For disputes, maintain detailed records of the nature of the dispute, all resolution attempts, and the internal or external stakeholders involved. Additionally, always keep proof of goods/services delivered and any acceptance documentation (e.g., signed delivery receipts, project completion sign-offs).

Templates:

• Call Log Template:
  • Date:
  • Time:
  • Contact Person:
  • Company:
  • Invoice #:
  • Channel: (Phone, Email, In-person)
  • Discussion Summary:
  • Outcome:
  • Next Steps:
  • Follow-up Date:
• Dispute Form Template:
  • Date of Dispute:
  • Invoice #:
  • Nature of Dispute:
  • Client's Stance:
  • Internal Assessment:
  • Resolution Attempts:
  • Stakeholders Involved:
  • Current Status:
  • Proposed Resolution:
• Payment Promise Confirmation Template:
  • Subject: Confirmation of Payment Arrangement - Invoice [Invoice Number]
  • Dear [Client Name],
  • This email confirms our discussion on [Date of discussion] regarding Invoice #[Invoice Number] for [Amount]. We understand that [briefly state reason for delay, if agreed].
  • As agreed, payment of [Amount/Payment Plan Details] will be processed on [Date/Dates].
  • We appreciate your commitment to resolving this matter. Please let us know if you have any questions.
  • Sincerely,
  • [Your Name/Company Name]
    
    

When to offer payment plans (and how to structure them)

Offering payment plans can be a valuable strategy to recover debt while preserving client relationships.

Qualify clients based on criteria such as a good payment history (prior to the current issue), a genuinely temporary financial issue, or the client's strategic value to your business.

Avoid offering plans to chronic late payers, those with disputed amounts, or clients showing bankruptcy indicators.

Standard structures for payment plans include:

• 50% down now, with the remaining 50% in 30 days.
• Three equal monthly payments.
• Milestone-based payments tied to project completion or specific deliverables.

Always ensure the payment plan is a written agreement with clear terms and specified consequences for default (e.g., immediate demand for full outstanding balance, interest charges).

Implement automated reminders for scheduled payments and compliance tracking. If a payment is missed, escalate according to your established framework.

Payment plan agreement template

Need to collect debt faster? Try Chaser

Effective B2B debt collection demands a strategic, nuanced approach that moves beyond generic tactics. But the biggest opportunity for improvement lies in automation.

Up to 70% of collection touchpoints can be automated, freeing your team to focus on complex cases and relationship management.

Chaser is the right automation choice to help you streamline your B2B debt collection process, improve cash flow, and preserve valuable client relationships.

Book a demo today to see how Chaser can transform your collections.

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