Whether you work in your business every day or you’ve reached the point where you can step back a bit and let others take the reins, you never really stop worrying. Rising prices, high interest rates, changing consumer behavior, supply chain problems, hackers—there are plenty of things that can keep you up at night.
While small business surveys generally show optimism among business owners, there are reasons to be cautious. Both the Small Business Delinquency Index (SBDI) and the Small Business Default Index (SBDFI) trended higher in the latter half of 2023, hitting their highest rates since pre-pandemic. Bad debts from trade credit and late payments are on the rise, too. The Payment Practice Barometer shows that more than half of invoices in the U.S. are paid beyond terms. In 2023, bad debt rose to 9%—a 50% increase over 2022.
While you cannot avoid all risks, you can take proactive steps to lower your exposure when it comes to trade credit. Account monitoring and control of your active accounts and accounts receivables can help you identify potential problems earlier and take steps to avoid taking a hit on your cash flow.
What Is Account Monitoring for Business?
Account monitoring for business involves systematically tracking and analyzing the financial activities and health of your business accounts and those of your customers or clients. Credit account monitoring is essentially keeping a close eye on the financial health of your customers and suppliers to get an early warning about potential problems before they impact your business.
Key Components of Account Monitoring
For a small business owner, account monitoring typically includes:
Tracking Payment Behavior
This involves monitoring when and how your clients pay their invoices. Are they consistently on time, or do they frequently delay?
While you can get information about your active accounts by looking at your A/R and aging reports, problems only arise after the fact. You can see when someone hasn’t paid an outstanding invoice or has gone delinquent, but it might be too late to do anything about it.
Ongoing account monitoring software solutions can monitor your active accounts by tracking the payment activities of your clients and customers to other suppliers. By checking business credit reports on a continuing basis, you can get alerts when payments slow or when other signs of financial distress emerge, such as a sudden drop in business credit scores. This enables you to act now before this affects your bottom line.
Credit Risk Assessment
Account monitoring and control automatically provide you with the data you need to regularly evaluate the creditworthiness of your clients or customers. When their scores drop, or there is an adverse public action, such as a judgment, lien, or bankruptcy, you know immediately. This can help you make better decisions regarding extending credit or whether your terms need adjustment.
Cash Flow Analysis
82% of businesses that fail do so because of cash flow problems. When other businesses cannot pay their bills, it can hurt your working capital.
While you likely watch your cash flow carefully, you don’t naturally have insight into your customers’ financial stability. If you extend credit for 90 days, you may not find out your customer has a cash flow problem until they go past due. Yet, account monitoring might alert you to this much earlier when your customers start missing due dates with their suppliers.
Fraud Detection
Account monitoring can also help to identify unusual activities with your accounts, which could indicate fraudulent or suspicious activities, giving you a heads-up for further investigation.
What Are the Benefits of Account Monitoring for B2B Businesses?
In the B2B world, automated account monitoring isn't just a good practice—it's a necessity for survival and growth.
Protecting Cash Flow
Cash flow is the lifeblood of any business, but for small businesses, it's particularly critical. An automated account monitoring service helps ensure a steady, predictable cash flow by:
- Alerting you to changes in clients' credit scores before they impact payments
- Notifying you of past dues or delinquencies in your clients' other accounts
- Flagging high credit utilization, which could indicate impending payment issues
For instance, Tom, a small business owner providing IT services, uses an automated account monitoring service. When the system flags a usually punctual client's declining credit score, Tom can proactively reach out, potentially uncovering and resolving an issue before it impacts his cash flow significantly.
Mitigating Credit Risks
Extending credit is necessary in most B2B relationships, but it comes with risks. Automated account monitoring helps mitigate these risks by:
- Providing real-time updates on substantive changes to clients' business credit scores
- Alerting you to adverse actions that can indicate declining financial health
- Offering insights to help you make informed decisions about credit limits
Art, owner of an auto parts manufacturing company, got an early warning about credit scores dropping with several key suppliers. With an early warning, he was able to find alternative suppliers for the raw materials he needed to avoid missing critical manufacturing deadlines.
Maintaining Healthy Business Relationships
Account monitoring isn't just about protecting your interests. It is also about building strong business relationships. By leveraging automated monitoring, you can:
- Address potential issues before they affect your business relationships
- Offer supportive solutions when you detect early signs of financial stress
- Build trust through proactive communication about financial matters
Consider Maria, who runs a wholesale bakery. Her account monitoring service alerted her to a long-time client's increasing delinquencies with other vendors. This prompted her to investigate and discover that the client was facing financial difficulties. Maria was able to renegotiate terms, avoiding a potential default. She also strengthened the relationship by providing a proactive solution to the client’s problem.
Enhanced Financial Forecasting
Accurate financial forecasting is crucial for business planning. Account monitoring and control provides the data you need to:
- Predict cash flow with greater precision based on clients' current financial health
- Anticipate potential payment delays by monitoring clients' credit utilization
- Make informed decisions about investments or expansion based on your portfolio's overall health
Lisa, a small business owner providing consulting services, uses the data from her account monitoring service to create more accurate monthly cash flow forecasts. This allows her to plan for potential disruptions and make strategic decisions about when to hire additional staff.
Reduced Bad Debt Write-Offs
By closely monitoring active accounts and receiving automated alerts, you can reduce the risk of bad debts. This benefit comes through:
- Identifying high-risk accounts early based on comprehensive credit data
- Implementing stricter payment terms for clients showing signs of financial stress
- Taking prompt action on accounts with declining credit scores or increasing delinquencies
Carlos, the owner of a small office furniture supply company, implemented an automated account monitoring service and received an alert about a significant drop in the credit score of a major client who had just placed a large order. The system also flagged that this client had recently defaulted on payments to other vendors in the industry. With this information, he was able to discuss the situation with the client and requested a larger upfront deposit to minimize his risk.
How Does Account Monitoring Improve Operational Efficiency?
Automated account monitoring streamlines various business processes, enhancing overall operational efficiency in several key areas:
- Streamlining accounts receivable processes: Real-time updates, prioritized collections, and automated reminders reduce manual work and improve cash flow management.
- Automating credit risk assessments: Instant credit checks, continuous monitoring, and data-driven decision-making enable faster, more accurate credit decisions for new and existing clients.
- Facilitating faster invoice collections: Early warning systems, tailored collection strategies, and streamlined communication help businesses collect payments more quickly and efficiently.
- Improving cash flow management: Accurate forecasting, proactive planning, and strategic decision-making based on real-time data lead to better financial health and more informed business choices.
- By implementing these efficiencies, businesses can save time, reduce risks, and focus more on growth and client service.
How to Choose the Right Account Monitoring Provider
Selecting the right account monitoring provider is crucial for effectively managing your B2B relationships and mitigating financial risks, as this decision can significantly impact your own financial health.
Here are some of the key factors to consider when choosing an account monitoring service.
Provider Credentials and Experience
When assessing potential account monitoring providers, start by examining their industry reputation. Look for providers with a strong track record and positive feedback from businesses similar to yours. Client references and case studies can offer valuable insights into the provider's performance and reliability.
The breadth and depth of credit data sources are paramount. A comprehensive account monitoring provider should offer monitoring services that include data from major credit bureaus such as Experian, Equifax, and Dun & Bradstreet. This ensures you get a complete picture of your client's financial health.
Don't overlook the importance of compliance with industry standards and regulations. Choose a provider that adheres to strict data protection and privacy guidelines, giving you peace of mind about the security of your sensitive financial information.
Compatibility with Existing Systems
Seamless integration with your current business processes is important for maximizing the benefits of account monitoring. Look for providers that offer flexible data export options, allowing you to easily incorporate the monitoring data into your existing workflows. API availability for custom integrations can be a game-changer, especially if you have specific needs or use proprietary software. This feature enables you to tailor the monitoring system to your unique business requirements.
You want a cloud-based system that offers cross-platform support and mobile accessibility, so ensure the provider offers mobile solutions that allow you to access critical information wherever you work.
Scalability for Future Growth
As your business expands, your account monitoring and control will likely grow as well. Choose a provider with the capacity to handle increasing data volumes without compromising on performance or speed.
If you have international aspirations, look for a provider offering global coverage. For example, account monitoring can be done using data from Credit Reports World.
Alerting Capabilities
Alerting capabilities are at the heart of effective account monitoring and control. Your chosen provider should provide automated notifications about significant changes in your clients' credit status, allowing you to take prompt action when necessary.
Also look for the ability to access instant, on-demand business credit reports. This feature enables you to make informed decisions quickly, whether you're onboarding a new client or reassessing an existing relationship.
Pricing, Contract Terms, and Flexibility
While it's tempting to focus on features, pricing and contract terms are equally important. Compare pricing structures across providers, but remember that the cheapest option isn't always the best value.
Pay attention to contract lengths. Some providers may offer more favorable rates for longer commitments, but ensure this aligns with your business needs and growth plans.
Understand the cancellation policies and any associated fees. Flexibility can be valuable, especially for small businesses or those in volatile industries. Prioritize pricing transparency. Hidden costs can quickly erode the value of a service, so choose a provider that is upfront about all fees.
Frequently Asked Questions — FAQs
What is the ROI of account monitoring services?
The ROI of account monitoring services can be substantial, often resulting in reduced bad debt write-offs, improved cash flow, and time savings. While exact figures vary, many businesses report recovering the cost of the service by avoiding just one payment default.
What role does AI play in modern account monitoring?
AI enhances account monitoring by analyzing vast amounts of data to predict potential payment issues before they occur. It can identify subtle patterns in customer behavior and market trends that might otherwise go unnoticed, allowing for more proactive risk management.
What are the best tools for account monitoring?
The best account monitoring tools provide comprehensive credit data, real-time alerts, easy integration with existing systems, and user-friendly interfaces.
Is account monitoring only necessary for large businesses?
No, businesses of all sizes can benefit from account monitoring. In fact, small and medium-sized businesses often have more to gain as they are more vulnerable to cash flow disruptions caused by late payments or defaults.
If you would like to learn more about how account monitoring and control can help mitigate risks in your business and protect your bottom line, get a free demo from Command Credit today.