B2B payments offer more flexibility than ever before, with buy now, pay later (BNPL) gradually becoming more and more prevalent in e-commerce transactions, be they B2B or B2C.
This environment offers both challenges and opportunities to businesses, as they look to navigate the new marketplace while preserving returns and the creditworthiness of their clients. The traditional model of invoices and credit facilities were geared more towards clients than sellers, who were often left with the cost of credit checks, the risk of non-payment and an annoying habit of client late payment. Unlike other solutions such as payment apps, BNPL offers a balance of client and seller benefits that provides a compelling and cost-effective payment solution.
The old system
Previously, businesses tended to onboard new clients following a credit check and offering terms for a trade account. This was a complicated process that required maintaining an internal finance department capable of judging the creditworthiness of clients and offering reasonable terms, a back-and-forth that would often cause internal tension between sales, eagerness to offer credit and maximise client numbers, and a more apprehensive finance department.
Once the agreement was set up the client is entitled to the use of a credit facility, and can normally settle the balance by transfer or in cash with a 30-day limit. A recurring problem under this system was that credit checks were only done at the beginning of the relationship, or sometimes once per year, and the sales relationship made it difficult to adjust the limits of the trading account in any direction other than up.
Invoices are also very client-friendly in that they offer a 30-day period to pay, a feature that some clients push to its limits with consistent late paying. Because later payments give a business more time to generate funds through day-to-day operations, they are highly advantageous to the buyer, but given the prevalence of late or even non-payment, this advantage comes directly out of seller profits.
Some solutions have been around for over a decade, namely instant payment maps, but these come with their own disadvantages: the best known among them add fees of 3-4%, and have very unfavourable foreign exchange rates. These fees are split across both the buyer and seller, making them unpopular for large payments especially.
One of a new generation of B2B payment processors, Biller Payments offers something a little different. You may be familiar with BNPL options from the B2C market, where they have become ubiquitous on clothes and consumer goods shopping sites, but the B2B sector still lags in terms of BNPL adoption.
As more and more B2B order traffic takes place on e-commerce platforms, the advantages offered by BNPL become more and more apparent. At each stage of the online customer journey, there is slippage, with many clients leaving goods in the basket, or clicking off at the payment stage when they see their favourite option is not available. This holds true across both B2B and B2C customers, but given the larger order size in the B2B market, slippage is even more costly in a B2B environment.
BNPL offers a less credit-intensive solution than a trade account, eliminating the need for extensive credit checking or the worries about late payments that come with invoicing since the payment is received by the client immediately and then staggered by the payer.
There is still a credit risk present but greatly reduced when compared to a traditional trade account given the down payment of the first instalment. The benefits go in both directions, with B2B clients happy to see they can limit the one-off cost of each purchase by dividing it up into several payments.
BNPL options improve the retention rate on purchases, as customers are happy to see the option in their basket, without offering such favourable terms as to disadvantage the seller.
In some industries, B2B sellers feel like they are being taken advantage of by their clients with systematic late payment and maxed-out credit facilities. E-commerce offers solutions to this, but they come with the difficulty of needing to persuade long-term clients to use what might seem like a less favourable payment system.
BNPL offers a powerful incentive to move away from the old, labour-intensive model of invoicing and credit facilities, allowing sellers to streamline their finance departments and save valuable time. By freeing up sellers to focus on their business, and by improving the conversion rate from clicks to sales, BNPL is a powerful tool to improve B2B sales performance.