In most B2B transactions in Nigeria, there is always the possibility that certain clients will not pay their bills on time, and as a business owner, you can reduce the amount of unpaid invoices by implementing business to business (B2B) debt recovery strategies.
The essence of running a business is to make profit. Businesses render services in exchange for money from which the profit is actualised. Where a business is unable to make profit, it suffers. There are many factors that may affect a business’s profit making capability, one of which is credit.
Credit as envisaged here is very common among businesses and refers to the rendering of services to a client with a promise to pay at a future date. When the future date is reached then the business may then proceed to recover the debt.
The “Business to Business (B2B)” debt recovery strategy is critical to the growth and expansion of every business. However, countless businesses in Nigeria are failing due to the lack of competencies in the business-to-business (B2B) debt collection strategies.
What is Business-to-Business (B2B) Debt Recovery?
A B2B debt recovery is a specific type of debt recovery and differs from the Business to Customer (B2C) debt recovery in that, in a B2B recovery, debt is recovered from a client which is another business, whereas in a B2C recovery, debt is against an individual customer.
What is the Importance of Business-to-Business (B2B) Debt Recovery Strategy?
When you earn, the majority, if not all, of your revenue from B2B services, you may occasionally provide services prior to receiving payment from your clients. While this model is widespread, it is fundamentally dangerous because when a client fails to pay their invoice on time, they create a cash flow gap in your business. As a result, you’ll have less cash on hand to pay your bills. A great debt collection plan minimizes the occurrence of these gaps.
Moreover, a great debt collection strategy facilitates communication between you and your customers. This is because collection strategies entail thoroughly outlining the methods clients can use to pay you and when they are required to do so, they also simplify your client’s life. For this reason, as well as cash flow considerations, you should frequently review your collection strategy – you cannot solve problems unless they are identified, and certain issues may not be visible at first.
What are the Business-to-Business (B2B) Debt Recovery Strategies in Nigeria?
The existence of debts when running a business in Nigeria is unavoidable; hence, it is important for a business to have effective strategies which it can recover debts.
Below, we discuss a few strategies which businesses may adopt to make the process of debt recovery less cumbersome:
Collect and Store Accurate Information and Transaction Records.
This is the most practical and simple yet effective strategy to recover debt. The importance of a detailed record of transactions cannot be overstated. It has become very relevant to keep track of all transactions entered into by a business so that where any of them which are on credit goes into default, the business can have a pool of information to rely on.
Some information which should be collected by the business includes;
- Name and address of the Client
- Name and addresses of all its principal officers and next of kin information
- Date of the execution of the obligation or debt
- Date when demand must be made
Thus information can be collected in the form of Know your Customer (KYC) forms, invoices, transaction registers etc.
Asides from just collecting this information, it is important to also store them in a safe space so that in the event of default on the payment, the relevant information to go after the business can be easily found.
Have A Proper Reminder System
Majority of businesses have had credits go into forgotten debts due to a lack of proper reminder systems. It is not sufficient to have accurate information and store them, if at the due date of demand, the business owner forgets about the status of these debts.
Thankfully, the advent of new forms of technology has made it very easy for business owners to properly categorise and store records as well as create reminders for when it is necessary or due. It is advisable that business owners take advantage of these forms of technology such as Microsoft To-Do, Google Keep etc.
Maintain Communication with The Debtors
Maintaining a line of communication with a business’s debtors is a very simple and effective strategy and this strategy must be affected from the moment a credit transaction is created and until it goes into default. It is a practical tip to keep the existence of the debt on the minds of the debtor businesses and once the line of communication is closed, the likelihood of the debtor defaulting on the debt is higher.
It is also very beneficial that this communication is maintained over messages and emails as opposed to phone calls. The rationale behind this is that it safe for the business to have physical evidence of exchanges between the business and its debtor in case of any escalations to a Court of Law.
Make a Formal Demand
This is the first step to take immediately a debt goes into default. After the stated date of payment and the debtor business fails to pay, the business must write, through its principal officer, a Letter of Demand.
This letter should contain the following;
- The name and address of the debtor business
- The transaction from the which the indebtedness arose
- The amount in default
- A period within which the debtor is expected to pay up its debt.
Engage The Services of Debt Recovery Lawyer
In the event that a debtor business remains in default even after a formal demand has been sent and the time given lapses, the next best strategy is to engage the services of a debt recovery lawyer or an agent. Debt collection lawyers employ different mechanisms to achieve the aim of recovering the debt. A lawyer would usually undertake the recovery instructions in exchange for a one off payment agreed before commencing the process or for a percentage commission on the debt recovered.
It is important however to engage debt recovery lawyer who would employ legal strategies in the process of their recovery so as not to err on the side of illegality while recovering the loan. These lawyers employ a wide range of legal tools such as bankruptcy, winding up, receivership etc. to fulfil client’s instruction and get the work done.
Reasons Why You Need a Business-to-Business (B2B) Debt Recovery Lawyer in Nigeria
Businesses having troubles collecting money from late-paying or non-paying business clients may choose to consider employing a B2B debt collection law firm to manage their past due bills.
It is possible to spend an inordinate amount of time attempting to recover bad debt accounts. Failure to effectively manage or monitor these delinquent accounts can have a detrimental effect on the growth of your business, especially if you are just getting started.
Fortunately, you have a simple solution: To employ the services of an experienced debt collection lawyer. If you are short on time or uncomfortable chasing past-due accounts, hiring someone to do so will not only free up your time to focus on other critical business tasks, but will also enhance your cash flow, allowing you to develop your business.
There are numerous reasons why small businesses use the services of a collection agency. Here are a few instances:
To Avoid Wasting Valuable Resources
Nowadays, the majority of small enterprises operate on a shoestring budget, which includes the hiring of administrative staff. Each business owner/employee typically has many processes to execute in addition to their daily, weekly, or monthly responsibilities.
If someone spends the majority of their time pursuing past-due debtors, other critical duties may suffer, affecting other aspects of your business. Your business’s primary objective should be growth and profitability, and a team of expert debt collectors can assist you.
You Never Know What Type of Financial Difficulty Your Client May Be Facing.
Failure to engage debtors early in the collection process can expose your small business to bad debts. In general, the sooner your organization reports a past due account to a debt collection lawyer, the more likely the debt recovery lawyer will successfully assist you.
The issue is that your customer may suddenly be facing significant financial difficulties or may be trading while insolvent. If this is the case, there is a very significant possibility that you will receive no compensation and that this past-due bill will become a bad debt.
Engaging a debt recovery lawyer at early stage provides the best possibility for your organization to recover an overdue amount. Due to the fact that debt collection firms have built-in knowledge in debt recovery and are also well-versed on the legal side of the difficulty, they prefer to assist small businesses like yours in recovering debts more quickly by prioritizing your small business on the payment list.
Debt Collection Lawyers Expedite the Collection Process and Instil a Sense of Urgency.
Receiving a collection letter or phone call is a significant wake-up call for the majority of people. Additionally, receiving communication from a respected collection firm displays your commitment to recouping the balance. In short, it’s a strong motivator, and as a result, debts are paid more quickly when a debt collection firm is engaged.
Using A Debt Recovery Lawyer Can Significantly Reduce the Time and Effort Required to Run Your Business
Time management is critical for any form of business. It is extremely probable that a small firm will stagnate for an extended period of time if they spend considerable effort chasing down and attempting to locate delinquent debtors.
When a customer discontinues all communication with you — disconnected phone, no forwarding address — collection lawyers will assist in locating them.
Using A Debt Collecting Firm Consistently Minimizes the Level of Your Bad Debts.
Additionally, there are numerous advantages to using a debt collecting firm for an extended length of time. The longer you retain a debt collection service, the more your small business’s bad debts will be reduced. Fewer bad debts are a major indicator of a healthy business. Additionally, it might convey to your clients the impression that you are a respectable organization that does not tolerate late payments or evasive clientele.
Is Your Business Having a Hard Time Recovering Debt?
Our B2B debt recovery lawyers at Olisa Agbakoba Legal (OAL) are prepared to assist you with experienced debt recovery advice and legal support services, while you focus on running your business more successfully.
Ginika is an Associate and a member of the firm’s Alternative Dispute Resolution, Maritime and Sports, Entertainment and Technology Practice groups. She is a smart, result-driven and efficient lawyer with professionalism that makes her a great asset to the team.