To build an e-commerce experience that will attract and retain B2B buyers, it is imperative that merchants ensure that the experience integrates with all sales channels and that they offer their customers as many choices as possible. during checkout. B2B sellers who offer more payment flexibility increase the likelihood of receiving a greater share of wallet from their buyers.
One of the growing alternative payment options for consumers is Buy Now, Pay Later (BNPL), also known as Trade Credit, which is the original BNPL for businesses. Now, more than ever, B2B buyers are looking for the same kind of efficient and convenient online transactions with payment terms. But while the original concept of BNPL is the same – buying with the intention of paying in instalments or on credit – there are some key differences in the business world.
To learn more about the similarities and differences between BNPL for consumers and businesses, and why offering payment options is key to meeting B2B buyer expectations and opening up additional revenue options, PaymentsJournal spoke with Brandon. Spear, CEO of TreviPay, and Steve Murphy, Director of Commercial and Corporate Payments Advisory Services at Mercator Advisory Group.
BNPL for B2B: Exploring Business Financing Options
PaymentsLog BNPL for B2B: Exploring Business Financing Options
The Current State of BNPL Business
Online B2B sales are here to stay. According to McKinsey, B2B companies are no longer just testing the waters when it comes to their e-commerce offerings. 32% of respondents now rank e-commerce as the most efficient shopping channel, compared to 23% for in-person transactions.
More than a third of manufacturers expect growth of at least 25% in B2B e-commerce sales over 2021-2022, according to data from research and technology companies’ “The State of International E-Commerce in Manufacturing” report in e-commerce Copperberg, Intershop and Evident.
However, the introduction of BNPL in the B2B world is not a straight path. “As with many new financial products and services, there is a lag of varying lengths before adoption spreads to B2B,” Murphy said. There are several reasons :
- Lack of experience with B2B use cases among programs and entrepreneurial populations
- Extended B2B sales cycle times – for consumers this can be instantaneous, but for businesses this can take months or even years
- Increased risk that comes with greater size and scale relative to consumers
“The common factor is complexity,” Murphy explained. “A B2B purchase is mostly multi-step compared to a consumer purchase, and the financial health of a business is more difficult for a business to assess than for a consumer.” While it is more difficult to assess the reliability with which a company can repay its loans, it is more difficult to introduce a BNPL option.
Complications to Delivering Smooth BNPL Experiences to Enterprises
The concept of BNPL is not exactly new in business, although the BNPL label is. Trade credit has been used in business long before it had a name; it’s the modern way for businesses to process IOUs. The classic example of trade credit is known as “2/10 net 30”, which means that a buyer will receive a 2% discount on the net amount if they pay the invoice in full within the first 10 days from the invoice date, otherwise the buyer will receive owes the full amount within 30 days. BNPL is a simplified version of this arrangement, where you can pay 25% down payment and owe the rest over three months.
“The next logical area of expansion for BNPL is in small businesses, which we’re starting to see now,” Murphy noted, as small businesses could behave similarly to a single consumer. “As you move up in company size into the middle market, where demand will be more vertically focused, the experience will need to be flexible. It’s going to need to be mobile, and it’s going to need to be mobile. “It’s fast. Suppliers will want buyers’ choice of BNPL financing to be simple and frictionless.”
The shift to B2B adoption can be tricky, however. Businesses don’t have a “credit score” to make sure they’re good for lending like consumers do, and gathering information is a much more sprawling process because there are so many individuals and components within companies. “This idea of corporate identity theft is becoming more commonplace,” Spear added. “We are seeing a very significant increase in the number of companies where bad actors are pretending to be part of a real company or are actually trying to take over email addresses or hack into pieces of that company’s infrastructure. to apply for lines of credit. The growing shift to e-commerce makes this type of fraud all the more common.
Moreover, the dollar scale of B2B purchases is significantly different from that of consumers. “Vendors obviously love this because the average order value is way above what they might typically see,” Spear pointed out. “But there’s a lot more risk inherent in trying to validate if it’s a fraudulent app.” Multi-factor authentication (MFA) is much more difficult when multiple people are authorized to make purchases on behalf of a company’s line of credit. On top of that, the use cases are generally narrower, applying mostly to capital purchases (e.g. wholesale computers), but are unlikely to replace traditional trade credits.
What BNPL implementation looks like for businesses
Despite the inherent hurdles, there are strong ways to bring BNPL into the B2B world. “There is access to more data than there ever was in the past,” Spear pointed out. “More and more data repositories are being accessed through APIs, which is one of the key things that has basically fueled the rise of Buy Now, Pay Later for consumers…these types of interconnections exist and are available for a B2B transaction.” The infrastructure for such a transaction already existed for trade credits, and the process is not that different. Sourcing could be an area of opportunity in the future.
Executives exploring financing options will need to assess the viability of the BNPL business. Charges tend to be 1.5 to 2 times higher than with a credit card, so they will need to consider whether the expected increase in order value is worth the cost. “The buying process involves many different stakeholders,” Spear added. There is the person who buys, the subject matter expert, the budget controller; for a small business, it may be the same person. “I would expect the adoption of BNPL for enterprises to occur first in the SMB customer base,” Spear continued.
As BNPL’s businesses change, they will use market models to try to target new customer segments or use cases, and potentially uncover categories where BNPL fits well. “You first need to do the analysis and validate and confirm exactly which segments of your customer base you are going to target,” Spear clarified. “Once you’ve done that analysis, there are some really good technology choices and service providers that can help you execute those strategies.” Setting up e-commerce, for example, is much easier than dealing with physical outlets, so e-commerce tends to take priority.
Finally, interest rates should be watched over the next two years. “It will be ‘prime rate plus’,” predicted Murphy. Paying in instalments becomes a riskier business when interest rates are higher. “The customer segment that will likely be in the most pressure will be small business,” Spear concluded. “As a result, I think this category of buyers will increasingly demand more choice, more options and being able to spread out payments more.”