It can be a significant challenge for B2B merchants when customers don’t pay their invoices. This situation can not only lead to financial bottlenecks but also take up administrative resources. So how can you take effective action to recover your money and minimize such incidents in the future?
When is a payment overdue?
While invoices are generally due upon receipt of the goods in Germany, the United Kingdom and the Netherlands require that the net payment terms are clearly stated on the invoice as a specific date or deadline.
If no agreement has been made, the standard payment period in the UK is 30 days. The same applies to domestic business transactions in the Netherlands (Civil Code Art. 6:119a(4)). In Germany, the legislator also grants customers a payment period of 30 days after “the due date and receipt of the consideration” if no individual agreement has been made (BGB § 286).
In order to set an individual deadline that deviates from the statutory 30 days, an explicit indication is required on the invoice. This can be done either by stating a specific date (e.g., “Please pay by 1 May 2023”) or by defining a time frame (e.g., “Please transfer within 60 days”).
The risks of late payment
The risks of late payment are manifold and can weigh heavily on companies. A study from 2022 shows that B2B invoices are paid on average 10.5 days late, emphasizing the importance of clear payment terms and monitoring.
Late payment leads to liquidity bottlenecks, which 42% of companies suffer from, and an increased administrative burden. Companies must devote resources to tracking payments, sending reminders, and possibly taking legal action.
These problems can jeopardize financial stability and strain on business relationships, as trust and reliability are crucial in B2B relationships. To minimize these risks, it is essential to clearly communicate payment terms and implement effective monitoring processes.
“Lack of liquidity is one of the most common causes of insolvencies and job losses.” – Marwin Ramcke, CEO of the EOS Group.
Your rights as a B2B merchant if a customer doesn’t pay an invoice
As a merchant, you have specific rights if your B2B customers don’t pay invoices or do not pay them on time. These measures are designed to protect you as a merchant and ensure that you are compensated for the expenses and losses incurred due to payment default.
- Late Fee Charging: You are entitled to impose a late fee of 8% on overdue payments.
- Dunning Procedure Initiation: You can commence a dunning procedure in cases of delayed payment, though this is not mandatory before taking further legal measures.
- Damages for Invoice Pursuit: The costs incurred in pursuing overdue invoices can be recovered as damages from the debtor.
- Lump Sum for Late Payment: You have the authority to charge a standard fee of £40 from your business customer in instances of late payment.
6 options when a customer doesn’t pay an invoice
- Direct contact: A personal conversation can often clear up misunderstandings and lead to a solution.
- Payment plan: If the customer has financial difficulties, a customized payment plan can help.
- Dunning procedure: A staggered dunning procedure helps to increase the pressure appropriately.
- Legal action: Legal action may be necessary as a last resort.
- Debt collection services: Professional service providers can take over the collection effectively.
- Working with a B2B BNPL provider: Outsourcing credit checks and handing over payment defaults can be an effective way to minimize risk. This way, you are better protected against the challenge of a customer not paying the invoice.
Minimize risk: How to avoid payment defaults
Payment defaults can never be prevented entirely. With Mondu, however, you can effectively reduce the risk and improve your B2B payment processes. Mondu guarantees on-time payments and takes over the collection process – professionally and customer-friendly to protect your business relationships and brand reputation.
Mondu makes it possible to offer your business customers a variety of payment options to your B2B customers, both online and offline, while minimizing the risk of payment defaults. You receive your payments in advance, directly after the goods have been dispatched, and Mondu takes care of receivables management. This way, you avoid the hassle of dunning procedures while maintaining satisfied customers and a risk-free sales process.
FAQ
In the UK and the Netherlands, an invoice payment is considered overdue when it exceeds the net payment terms clearly stated on the invoice.
If no specific agreement has been made, the standard payment period is 30 days in both countries. In Germany, customers are generally granted a 30-day payment period after “the due date and receipt of the consideration” if no individual agreement has been made.
To set a different deadline, you must explicitly indicate it on the invoice, either by stating a specific date or defining a time frame.
Late payments can have several negative impacts on B2B merchants:
- Liquidity bottlenecks: 42% of companies suffer from cash flow issues due to late payments.
- Increased administrative burden: Resources must be devoted to tracking payments, sending reminders, and potentially taking legal action.
- Strained business relationships: Late payments can damage trust and reliability, which are crucial in B2B relationships.
- Financial instability: Consistent late payments can jeopardize a company’s overall financial health.
B2B merchants have several rights when customers don’t pay invoices or pay them late:
- Late fee charging: You can impose a late fee of 8% on overdue payments .
- Dunning procedure initiation: You can start a dunning procedure for delayed payments, although this isn’t mandatory before taking further legal measures.
- Recovery of invoice pursuit costs: You can recover the costs incurred in pursuing overdue invoices as damages from the debtor.
- Standard late payment fee: You have the authority to charge a standard fee of £40 from your business customer for late payments.
While payment defaults can’t be entirely prevented, there are ways to reduce the risk:
- Clear communication: Ensure payment terms are clearly stated on invoices.
- Effective monitoring: Implement processes to track payments and follow up promptly on overdue invoices.
- Use B2B BNPL services: Consider working with providers like Mondu, which guarantee on-time payments and take over the collection process.
- Offer diverse payment options: Provide various payment methods to accommodate different customer preferences.
- Outsource receivables management: Let specialized services handle payment collection to maintain customer relationships while minimizing risk.
A B2B Buy Now, Pay Later (BNPL) provider like Mondu can help in several ways:
- Guaranteed payments: They ensure you receive payments on time, directly after goods have been dispatched.
- Risk reduction: They take over the collection process, minimizing your exposure to payment defaults.
- Customer-friendly collection: They handle receivables management professionally, protecting your business relationships and brand reputation.
- Multiple payment options: They allow you to offer various payment methods to your B2B customers, both online and offline.
- Simplified process: They eliminate the need for you to handle dunning procedures, maintaining customer satisfaction while reducing your risk.
