On the matter of payment, which characteristics must online retailer in Germany consider?
Even, if there is a significant change of purchasing behaviour of customers – most of German consumers proof new payment options very accurate. A good example for this is PayPal: Founded in 2004 in Germany, the service truly became popular only in the last five or six years, with a market share of around 20 percent. Therefore, it is significant for the German market, to offer what is familiar and well-known, that means payment on invoice and direct debit. These two payment methods still hold more than 50 percent of all payments. An online retailer must offer the desired type of payment to his customer – for the German market it should not be more than six of it:
- SEPA direct debit
- Payment on invoice
- Credit card
- P2P or online banking (e.g. “immediate transfer“)
- Advance payment by bank transfer
Which challenges exist in particular in the field of payment?
On one hand, online shops must offer “payment on invoice” and “direct debit”, on the other hand according to a recent study by ibi Research and EHI, payment on invoice in particular is the payment option, which mostly results in payment irregularities. Due to outstanding customer payments the online retailer himself might get into payment difficulties towards suppliers and employees. This might result in an expensive top up of the current account at the principal bank or a falling creditworthiness due to bad ranking. Therefore, a conceptual risk and receivables management is highly recommended, because the waiving of this payment option costs valuable conversion and revenue.
What are the characteristics of digital receivables management and debt collection?
In digital commerce the digital processing of cases of failure (payment defaults) and the transfer from the ERP, the shop system or the professional accounts receivables management like billwerk is very important. A digital interface to the provider is necessary for the data transfer. Therefore, the service provider should follow the customer and be able to dock on to random points. If the case is to be processed, this process should be bi-directional, in order to accumulate data records (including reports) and to restore it to the customer. This ensures efficient procedures, that are available also for masses, allows the creation of algorithms and different workflows – up to optimizing of the customers processes based on the knowledge gained by the service provider.
Above all, digital receivables management also means, that the communication with the debtor continues the same way as the contract started – digital. Paradoxical, but also belonging to digital receivables management: The debtor remains seeking personal contact with us.
Which strategy of receivables management do you recommend?
Many steps can be automated: the monitoring of maturity, the setting in default, reminding, communication, monitoring etc. If all commercial measures have been exhausted, and the debt remains unpaid, it is worth to choose a legal representative as next instance. My advice: The sooner this step is done, the bigger are the probabilities of success. But each provider must determine the right time of handover by himself in the sense of a positive customer experience.
How would you describe the facets of receivables management?
Economical, these variants of passing on are not always optimized because of the risk discounts, the lack of availability of data and further requirements – this must be observed.These variants might fit as worry-free solution for new companies due to high cash squeeze, but latest after three or four years, they might not be the best choice anymore. My advice: Assess the variants pragmatically and regularly by an expenditure/revenue accounting, and proceed strategically in finding your solution.
What are the biggest risks in the field of digital commerce compared to the brick-and-mortar stores?
In the age of omni- and multi-channel commerce, there are risks of the commerce per se, as well as different sales channels online or point-of-sale. In principle, digital companies face the same risks like other companies, for example damage to persons, goods or assets, as well as theft and fraud. Specifically, for the digital trading platform there are risks like copyright infringements, warning letters, cyber-attacks, insufficient data security, or shop availability. But I would say that especially payment defaults and identity theft can be particularly threatening, because they may directly have a negative impact on the customer relation, and may affect a significant financial burden on the retailer.
What should someone do concretely with this knowledge?
A requirement analysis is the first step. For those who are not familiar with the subject, I recommend the free guide “Risk and receivables management in digital commerce”. This guide we developed in the Federal Association of Digital Business (Bundesverband Digitale Wirtschaft – BVDW).
Thank you very much for the conversation!!
For more than 50 years I work for the firm KSP in the field of civil and commercial law. Core business of the company is the legal debt collection. The author Michael Sennert is devision manager of eCommerce/commerce/payment and responsible for business development.