It is important to understand the power equation in business-to-business
collections. Failure to understand this essential element of the collection
process weakens the creditor's ability to collect invoices as they come
All of the following statements are generally true about commercial [business
to business] collections:
Trade creditors have more power than they think they have. For
example, the customer may need the creditors goods or services
now or in the future, or may want to use the company as a credit
Credit managers need the ability to hold orders as leverage to
force reluctant customers to pay immediately, or as leverage to
negotiate a reasonable payment plan.
Creditors can force a delinquent debtor into involuntary bankruptcy,
but should do so only if it would be in their best interest to
If a creditor has a personal or inter-corporate guarantee covering
a debtor's obligations, it has significant bargaining power.
A creditor is in a better bargaining position if it provides
a unique or proprietary product. If this is the case, the credit
manager would be "unwise" not to use this leverage to
secure payment from delinquent customers.
When a customer has the creditor's merchandise and the creditor's
money [in the form of unpaid invoices] the customer is in a relatively
powerful position. Once a delinquent customer has paid the balance
due, the balance of power shifts to the seller.
Failing to react appropriately when a customer abuses your terms
of sale changes the balance of power in favor of the customer in
the short term and the long term.
For every inappropriate action on the part of a debtor [such
as breaking payment commitments] there should be an equal and opposite
reaction by trade creditors. Failing to react appropriately to
abuses by customers invites even greater abuse.