The B2B debt collection landscape is constantly shifting, and at ÉquiSettle, we’re on a mission to keep you informed.
A word from our CEO
Hi there,
This is our very first State of B2B Debt Collection report, and I’m happy to say it’s full of fresh insights on how B2B businesses are collecting on overdue invoices today.
But why should you care? Well, we all know you can’t improve what you don’t measure, and realistic targets come from having access to real-world benchmarks.
But proper benchmarks are difficult to come by in the world of B2B debt collection and recovery.
Our goal with this report is to cut through the noise and share some select trends we’re seeing inside our platform.
Curious how your Debt Recovery Rate stacks up against your industry peers?
Wondering what collection tactics are most effective at different aging stages?
This report has the answers, with data breakdowns across various industries and business models.
With thousands of users, from hundreds of companies, working in our platform every day we have a wealth of information available to us on how B2B collection teams are working. We’re seeing millions of dollars in overdue invoices managed every month and are uniquely positioned to analyze where companies and collections teams are putting their focus and how their results compare to one another.
We hope that this data will help you effectively take stock of your debt recovery performance and identify areas for potential improvement.
We’ll also explore trends in invoice aging buckets, analyzing the percentage of invoices at each overdue stage by industry. The report covers what we call “write-off rates” across industry verticals – in other words, the percentage of invoices that are ultimately uncollectible – as well as other key metrics, offering a comprehensive view of the B2B debt collection ecosystem.
Consider this report your data-packed guide to B2B debt recovery. Our hope is that you’ll walk away with actionable insights that will help you accelerate your collection cycles, minimize bad debt write-offs, and propel your business forward.
So grab a coffee and dive in – explore the findings, and leverage them to achieve your goals.
Best regards,
Alex Louisy
CEO, ÉquiSettle
Executive summary
For those of you who may be short on time, we have summarized the results of our findings below.
If you hate spoilers, avert your eyes now and move to the next section…
Our findings:
3 in every 4 small and medium-size businesses struggle to collect on overdue invoices.
Services companies often experience more challenging collections compared to SaaS companies within the same industry.
Office & Facilities Management companies see the lowest recovery rates than any other sector, with an average write-off rate of 14%. Although the “best in ÉquiSettle ” (top 25th percentile) in this industry achieve a write-off rate of only 6%.
Businesses leveraging automated workflows see significantly improved recovery rates. In fact, those businesses with over 40% automation in their collection processes experience a write-off rate of just 2%.
High-value sectors like Security, Compliance & Identity face larger overdue amounts, while sectors like Sales & Customer Success have smaller and more efficiently managed overdue totals.
Across the board there seems to be a trend that if overdue invoices are not collected within the first 90 days, they have a high chance of being ultimately written off as bad debt.
How big of a problem is overdue debt?
According to a survey by Intuit Quickbooks, 73% of SMBs are negatively impacted by overdue invoices.
So when almost 3 in every 4 businesses struggle to collect on overdue payments, it’s clear that bad debt is a major issue in the B2B world.
These uncollected invoices can cause serious cash flow problems, making it tough for businesses to meet their financial obligations, invest in growth, and ultimately stay afloat. The strain of overdue receivables can permeate an entire organization, hurting employee morale and productivity. What’s more, the resources spent chasing down late payments could be better allocated to revenue-generating activities.
Maintaining a steady inflow of cash is crucial for business success. That’s why having an effective debt collection strategy is so critical.
See Where You Stand: B2B Debt Collection Benchmarks
Let’s cover some of the key B2B debt collection metrics, and provide you with benchmarks we see based on our proprietary data inside ÉquiSettle.
Introducing one of our favorite metrics: Recovery Rate.
What is Recovery Rate, anyway?
Your Recovery Rate calculates the percentage of overdue receivables that you’re able to successfully collect.
There are several ways to calculate it, with the most simple being:
Recovery Rate = (Total $ Collected / Total $ Overdue) x 100
Here at ÉquiSettle, we use a more advanced Recovery Rate calculation that takes into account the age and risk profile of the debt. For more information on how to calculate your Recovery Rate accurately, head to this link.
In any case, Recovery Rate is an important KPI because it is an indicator of your collection effectiveness.
Indeed, your company’s Recovery Rate:
Indicates how much of your at-risk revenue you’re able to reclaim
Informs you of the health of your A/R and overall cash flow
Shows the efficiency of your collection processes and team productivity
Recovery Rate by Business Model
Our data shows that physical goods and marketplace companies running their cash collection through ÉquiSettle tend to have higher recovery rates than other business models.
This could be because the tangible nature of their offerings gives them more leverage in collections. Unlike digital services, physical goods companies can withhold future product shipments until outstanding balances are paid. Marketplaces, too, have built-in incentives for timely payment, as delayed payouts to suppliers can quickly erode trust and lead to supplier churn.
Take Malt, for example. They’re a leading European freelancing marketplace that pays their freelancers immediately upon project completion, even before collecting from the end client.
With such a model, efficient collections are make-or-break. By adopting ÉquiSettle’s automated workflows and data-driven strategies, Malt was able to increase their recovery rate from 75% to 92% within a year. Features like customizable email sequencing, collaborative case management, and real-time analytics were game-changers.
But this focus on maximizing recoveries isn’t just for marketplaces. While the median recovery rate for SaaS companies might be lower (around 82%), the best SaaS businesses are really good at collections, with a median recovery rate of 94% for the top 25 percentile.
ActivTrak is a prime example. This workforce analytics SaaS was able to achieve an impressive 97% recovery rate by overhauling their collections process with ÉquiSettle.
Workflow Automation: Eliminated manual follow-up tasks and ensured no overdue invoice slipped through the cracks.
Analytics: Made data-driven decisions by segmenting accounts and implementing targeted recovery strategies.
Collaborative Workspace: Enhanced cross-team collaboration, streamlined collections and quickly resolved disputes.
Within months of go-live, the ÉquiSettle platform revolutionized ActivTrak’s approach to A/R. Two years on, they’ve saved countless hours, drastically reduced bad debt, and avoided the need to expand their collections team. The ROI has been enormous.
This suggests that no matter what kind of business you run, optimizing your collections process can be a serious game-changer for your bottom line.
Recovery Rate by Industry
Overall median recovery rate falls at 84% across industries, though when you look into specific verticals you can plainly see that some are more effective at collections than others.
It’s clear that “traditional” industries like Office & Facilities Management and Consulting see significantly lower recovery rates, with businesses in these sectors often dealing with net 90 payment terms and erratic cash flows. In the case of Office & Facilities Management, the median recovery rate languishes at just 79%. However, the “best in ÉquiSettle” (top 25th percentile) in this industry achieve an impressive 92% recovery rate by leveraging advanced collection tools and strategies.
In contrast, industries like Clothing, Accessories & Home, see the highest median recovery rates through ÉquiSettle. As mentioned earlier, the ability to withhold tangible goods provides strong leverage for ensuring payment. What’s more, these businesses tend to have more standardized billing practices and clearer terms, streamlining collections.
How to Improve Your Recovery Rate
Businesses within those industries with lower recovery rates should prioritize revamping their collection processes.
Often in discussions around overdue debt, there’s a tendency to blame the customer. But here at ÉquiSettle, we’ve seen time and again that enhancing your own internal practices, and making it easy for your customers to resolve outstanding balances, clears up the majority of collection problems.
This can be achieved by:
Segmenting Your Debtors: Analyzing customer data to identify risk profiles and tailor your approach. A one-size-fits-all collections strategy is rarely effective.
Automating Manual Tasks: Implementing collection software to streamline workflows, from auto-generating demand letters to scheduling follow-up communications.
Tracking the Right Metrics: Monitoring KPIs like Recovery Rate, DSO, and At-Risk Rate to measure performance and adjust tactics.
Digitizing Payment Options: Providing easy, online ways for customers to settle balances, like payment plans and click-to-pay invoicing.
Resolving Disputes Quickly: Using collaborative tools to align stakeholders and come to resolutions swiftly, before balances become unrecoverable.
Interested in going further? In our article we outline 7 Strategies to Maximize Debt Recovery in 2023.
By adopting these approaches, industries with lower recovery rates can improve their cash flow, reduce revenue leakage, and boost overall financial health.
Recovery Rate by Industry and Business Model
When we combine both the industries and business models there are some interesting points that come out of the data.
Service companies experience the most collection challenges
Pretty much across the board, services companies have the lowest recovery rates, and in some verticals significantly lower than SaaS companies in the same industry.
In Cloud, Network & IT Infrastructure the median recovery rate for SaaS companies is 88%, vs. 81% for services companies within this industry.
In Finance, Insurance & Banking, the median recovery rate for SaaS companies is 85%, vs. just 70% for services companies within this industry.
In Human Resources, marketplace companies see a median recovery rate of 90%, compared to 87% for SaaS and 82% for services.
Services companies often deal with more complex and subjective deliverables, which can lead to disputes and delays in payment. There may be disagreement over scope of work, quality of output, or achievement of milestones. This ambiguity provides customers leverage to withhold payment.
Furthermore, services engagements usually have lower margins and higher working capital needs, making late payments particularly painful. There’s significant labor cost that needs to be recouped.
Conversely, SaaS companies typically operate on clearer subscription models with more standardized terms. Usage and value are easier to quantify, so there’s less room for dispute. Recurring and predictable billing also enables more consistent collection cycles.
The industries where SaaS models see the lowest recovery
There are, however, some exceptions:
Marketing & Advertising, where the median recovery rate for services companies is 83%, vs. 80% for SaaS.
Transportation & Logistics, where the median recovery rate for services companies is 79%, vs. 75% for SaaS.
In Marketing & Advertising, results can be quite tangible, like a completed creative campaign, generating fewer disputes compared with SaaS tools where ROI may be harder to define. Services companies in this space also tend to have more flexible payment terms and consolidated invoicing.
With Transportation & Logistics, services tend to be more transactional, with simpler agreements and faster delivery, leading to swifter collections than SaaS platforms that may have intricate implementation and longer time-to-value.
How much difference do automated workflows make to recovery rates?
Automated collection workflows can drastically improve recovery outcomes.
Take a company that has minimal automation in their debt collection process (less than 20% of tasks automated). Our data suggests that their low adoption of collection automation correlates with a 15 percentage point lower recovery rate compared to highly automated organizations. That’s a massive chunk of overdue revenue leaking out.
Now, consider a tech-forward company that has made automated workflows the cornerstone of their collection operations (over 40% of tasks automated). They’re able to achieve a phenomenal 98% recovery rate, capturing nearly every dollar of at-risk A/R. This maximized cash flow gives them the agility to invest in innovation and weather any disruptions.
For those in the middle, with 20-40% of collection tasks automated, the gap is smaller but still significant. They tend to see recovery rates about 5 percentage points lower than the highly automated group. While better than the minimally automated, there’s still untapped potential.
If automation is so great, why isn’t everyone doing it?
Businesses that prioritize collection automation see significantly better recovery results. However, some industries have been slower to adopt. A few reasons why that might be the case:
Technological Barriers
While some companies in this sector are quite sophisticated, others may lack the technical know-how or IT resources to implement automated collection workflows. They may be using outdated, disconnected systems that make automation a challenge.
Introducing ÉquiSettle’s Advanced Automation
We recently launched our most advanced workflow automation capabilities yet, solving this very problem. ÉquiSettle’s enhanced automation suite brings unprecedented power and ease to collection processes, with features like:
Multi-channel debtor outreach across email, SMS, and postal mail
AI-powered time/tone optimization for follow-ups
One-click automated demand letter filing
Real-time alerts for important debtor engagements
Payment plan generation and tracking
Find out more about Advanced Automation with ÉquiSettle here.
Relationship Concerns
Some companies worry that automating collections will depersonalize the customer relationship. They fear coming across as transactional or even abrasive. However, we’ve found that thoughtful automation actually improves the recovery experience on both sides.
ÉquiSettle’s Delightful Debtor Engagement
We design our automated collection workflows with the debtor experience in mind:
Omni-channel options respect debtor communication preferences
Adaptive outreach based on debtor engagements maintains a dialogue
Frictionless, digital payment tools make resolution painless
All with the human touch just a click away when needed for hands-on care
See ÉquiSettle in action with a demo.
Key takeaway
Our data clearly highlights the benefits of collection automation. The more a business embraces automated workflows, the higher their recovery rates climb.
While there may be hesitation and hurdles, the rewards are well worth the effort. By thoughtfully folding automation into your collection processes, bit by bit, you’ll recover more overdue debt with less strain on your team. It’s a win-win.
How long does it take to recover overdue debt?
When it comes to the time it takes to collect on overdue invoices (i.e. the period after payment terms have lapsed), the answer can vary quite a bit by industry. Let’s take a closer look at some of the notable trends…
Average Collection Period by Invoice Aging
In industries like Research, Data & Intelligence, Human Resources, Transportation & Logistics, Sales & Customer Success and Media & Publishing, the average time to collect on invoices 1-30 days overdue is significantly lower than other industries.
For example, the Media & Publishing industry has a median collection period of just 22 days for invoices in this aging bucket. This drops to 13 days for invoices 31-60 days overdue, and a mere 6 days for the 61-90 day bracket. These businesses are acting fast to recover fresh debt.
Across the board, however, there seems to be a trend that once an invoice ages past 90 days overdue, collection efforts become much harder and more drawn out. Many industries are seeing average collection periods of 90+ days for this invoice aging stage, with some, like Office & Facilities Management, taking nearly 150 days on average to recover this debt, if at all.
Risk of Write-Off (or “At-Risk” Rate)
The Office & Facilities Management industry, despite having lower average collection periods for invoices under 90 days overdue, faces an alarmingly high write-off risk. A whopping 14% of their receivables are ultimately uncollectible. This disparity may be due to the ongoing nature of facility services and the precarious finances of smaller clients.
The Security, Compliance & Identity sector also grapples with significant risk, with an average 12% of receivables becoming bad debt. The niche expertise and often project-based structure in this sector can lead to extended engagements and change orders that complicate collections.
Overall, these variations underscore the importance of tailored recovery strategies to control and mitigate the risk of write-offs, ensuring healthier cash flows and stronger financial footing.
High overdue amounts with quick resolutions
Interestingly, industries like Sales & Customer Success and Manufacturing & Supply Chain see a substantial portion of invoices fall into the 1-30 day overdue bracket – 19% and 18% respectively. Yet, compared to other verticals, they manage to resolve the lion’s share of this debt quite rapidly.
For instance, Sales & Customer Success companies typically collect on invoices 1-30 days late within just 18 days on average. This jumps a bit to 24 days for the 31-60 day aging bucket, but that’s still quite brisk compared to other industries.
This trend suggests that once an invoice becomes overdue in these sectors, collection teams kick into high gear to ensure the debt doesn’t linger or grow too stale. They’re making persistent, targeted efforts to get those receivables back on track promptly.
Key takeaway
While the volume and velocity of overdue debt may differ, industries with more complex services and larger transaction values tend to face a steeper climb with late-stage collections.
If you’re looking to shrink your collection periods and stave off bad debt, consider:
Offering multiple, digital payment options for quick resolution
Tailoring your contact strategy to different aging buckets and debtor personas
Consistently tracking collection KPIs to spot bottlenecks and optimize your approach
By putting these measures in place, you’ll be better equipped to recover aging receivables before they drift into write-off territory.
Why debt over 90 days overdue poses a serious risk
When businesses are dealing with invoices more than 90 days past due, they’re in a precarious position.
For one, the chances of successful recovery plummet the older a debt becomes. Debtors’ financial circumstances may have changed, their sense of urgency wanes, and the validity of the debt comes into question. It becomes a race against the clock.
Secondly, that chunk of revenue can’t be counted on. It wreaks havoc on cash flow forecasting, budgeting, and investment planning. Payroll, supplier payments, and growth projects all become tougher to manage with the uncertainty.
What’s more, exhausting internal resources on chasing down old debt means less bandwidth for nurturing new and healthy customer relationships. It’s a major drain on operational efficiency and team morale.
Then there’s the financial reporting impact. A high “at-risk” rate raises eyebrows with auditors, investors, and lenders. It signals poor fiscal management and puts future funding in doubt. It’s a red flag that can’t be ignored.
Finally, the business bears the brunt of those delayed funds. The time-value of money means that even if the debt is eventually collected, the company has lost out on the opportunity to put those dollars to work months ago, stunting growth and competitiveness.
But it’s not all doom and gloom. Over the past year, ÉquiSettle has helped unearth some incredible turnaround stories. All told, our users were able to recover a staggering $52 million in receivables that were more than 12 months overdue! That’s cash that most businesses would have long ago written off entirely.
One particularly dramatic case saw an energy company recover a $1.2 million invoice that was nearly 5 years past due. With ÉquiSettle’s automated legal demand chain and advanced skip tracing tools, they were able to track down the debtor and negotiate a resolution at long last. It’s a testament to the power of persistence and intelligent collection tech.
The bottom line
To wrap up, The State of B2B Debt Collection report paints a vivid picture of how different industries are grappling with overdue receivables. The debt recovery landscape is dynamic and complex, but with the right data and tools, finance leaders can hone their strategy for maximum impact.
Our analysis puts a spotlight on the pervasive challenges of a key financial activities while offering a wealth of actionable benchmarks for collections teams to learn from.
For industries like Office & Facilities Management, the road to recovery is steep, with a high risk of bad debt write-offs and long collection cycles. Meanwhile, sectors like Sales & Customer Success have a more efficient collections process, though still with room for improvement.
No matter your industry or business model, there are clear steps you can take to boost recovery rates, accelerate collections, and protect your bottom line. From automating manual workflows to rethinking your approach at different invoice aging stages, small changes can yield big results.
If you want to dig deeper, our free Retain plan gives you a comprehensive view of your A/R performance against industry peers. Simply sign up, sync your existing data, and uncover areas ripe for optimization across recovery KPIs. It’s eye-opening information.
Thanks for taking the time to explore this report with us. Here’s to a prosperous, back debt-proof year ahead.
For industry-specific insights, we focused on those sectors with a robust sample size of at least 10 organizations to ensure statistical significance.