Payment terms, if not met, do businesses a disservice by depriving them of a source of funds. In the case of B2B marketplaces, which act as a link between professional sellers and buyers, it will be crucial to manage these deadlines by offering tailor-made solutions adapted to the business lines and operating models.
Although the Modernisation of the Economy Act (LME), which entered into force on 5 August 2008, made it possible to reduce payment terms and thus improve the cash flow of some suppliers, these payment terms vary greatly from one sector to another*.
On average, payment terms are 44 days for customers across all industries, with 25 days for commercial customers compared with 55 days for manufacturing industries. Within these same industries, companies pay their suppliers between 42 and 61 days on average.
How can one remove barriers and offer buyers payment terms while keeping control of the seller’s cash flow and exposure to risk?
This is the equation that operators must solve in order to convince buyers to finalise a transaction and to ensure that sellers use the marketplace as a strategic axis for growth.
As a payment institution, Webhelp Payment Services is used to working with different business sectors such as fashion, agri-food, pharmaceuticals and manufacturers. We offer marketplace operator customers solutions specific to their customer strategy, including maintaining control of payment terms and deadlines in order to reduce risk. In fact, it is up to the marketplace operator to define the rules that apply on its marketplace. It thus directs the buyer towards a risk-free but potentially prohibitive prepayment, or towards payment on the due date, which facilitates the transaction but places a financial risk on the seller.
The payment terms themselves contain a number of elements that facilitate risk management, such as payment dates or the method of payment (bank transfer, direct debit, financing plan, etc.). Also, this decision-making phase is even more crucial than the transactional phase because it will help avoid problems in the future.
Tailored solutions to reduce payment terms
In addition to its function of bringing sellers and buyers together via the platform, the marketplace makes it possible to automate the tracking of invoices until they are integrated into the interested parties’ CRM. Automation of the process thus allows considerable time savings between invoicing and payment, significantly reducing the payment date.
To reduce and control payment terms on your marketplace, our experts support you based on the profile of the transaction and the buyer with tailor-made solutions adapted to your situation:
- Is this a first purchase?
- Do you have qualitative information about the buyer and their payment behaviour (have they ever had outstanding payments to their bank? Do they have overdue debts?)
- What is the transaction worth? (a €100 purchase does not involve the same financial risk as a €50,000 purchase)
- Is the buyer covered by credit insurance?
Finally, it will be essential to set up a proper credit management process, following-up overdue invoices and a step by step reminder and recovery process (amicable, pre-litigation, litigation).
Our experts will recommend good practice to suit your situation:
- If it’s the first transaction between a seller and the buyer: focus on zero risk
In the case of a new customer it is preferable to offer only prepayment by credit card or bank transfer to reduce the risk of unpaid invoices (order not despatched until payment has been received).
If you know your customer, you can give them the choice of payment method. Alternatively, you can calculate the customer’s outstanding payments and offer the customer only prepayment if outstanding payments are already very high in your marketplace.
Either way, these management rules are decisions for which the operator is responsible and are applied in the marketplace via the PSP and the platform.
- The due date has passed
Above all, it will be necessary to manage an incremental approach to future payment reminders. A customer who is late in paying is not necessarily a bad customer. Also, it is advisable to send the first reminder by e-mail or SMS, then to space out reminders so that they are not perceived as harassment.
However, if after several weeks the payment has still not been received, we will recommend that you call in specialist collection agencies who will be responsible for contacting the customer (by post and telephone).
To conclude, while it is true that, in the context of how a marketplace operates, the risk of non-payment is borne by the seller, it nevertheless remains the responsibility of the marketplace operator to set the rules and more particularly the payment terms made available, the payment deadlines granted or the type of reminders when payments are in default.
These good practices apply internationally, adapted to normal practice in each country, something which Webhelp Payment Services does through its seven subsidiaries based in Europe and North America, making payments to more than 35,000 buyers in 35 countries.
* Based on the 2018 Annual report on compliance with payment terms
