In recent years, we have seen a rise in the use of alternative payment methods. Among these is Buy Now, Pay Later (BNPL), a type of short-term financing that allows the payer to purchase goods and services on the spot and pay for them later.
The popularity of B2C BNPL
If the above sounds familiar to you, it is because you may have seen – or even used – BNPL services in your personal life. BNPL has made significant headway in the B2C space. As a popular payment method among millennials and Gen Z, more and more retailers have implemented BNPL solutions in their web shops with the goal to increase sales and customer satisfaction.
The need for B2B BNPL
As the success of B2C BNPL continues, the global business market began seeing the need for BNPL services for B2B sellers. This was due to several reasons.
Firstly, digitisation in the B2B space has been rapidly ramping up in the past decades as more and more sellers realise the importance of offering omnichannel services. With the arrival of a global pandemic came a large increase of web shops when sellers could no longer meet their customers in person.
With this digitisation came the realisation that many B2B digital payments were frustrating, inconvenient, and outdated. Companies were still sending out invoices created one by one, and they were conducting credit checks manually. These processes required a lot of human resources and time, and they were not cost-efficient for companies anymore.
Finally, even when a seller gets everything right with speedy credit checks and a great web shop interface, there was still one element they could not control. This was whether their customers would pay their outstanding invoices on time. Many companies are spending a substantial amount of time on invoice-chasing and negotiating late payment terms. This has a great impact on the business’s cash flow and liquidity, and it hinders growth.
The decision for most companies to implement B2B BNPL, therefore, was usually a relatively easy one. What took time was understanding how BNPL works, and how one can choose the right provider for their business.
How BNPL works in B2B spaces
In the B2B space, BNPL solutions are typically implemented in web shop checkouts. When a customer makes a purchase, they can select the BNPL option.
The BNPL provider then conducts an automatic credit check by searching existing databases and the wider web on the business patterns and purchase history of the customer. This is often done by AI to reduce errors and approval time.
Once the customer has been approved, they can proceed to select their payment terms. Many providers offer payment in instalments or delayed payments of 30, 60, or 90 days. The customer then confirms their payment details, and the transaction goes through.
In the meantime, the BNPL provider ensures the B2B seller does not meet problems with their cash flow by footing the bill. This depends on the provider, but the seller gets paid in full usually within a week.
When the customer is ready to pay back the outstanding amount of their purchase, they pay back the BNPL provider.
One way to look at it is that the BNPL provider is a middleman who facilitates the transaction. They perform the necessary credit checks on behalf of the B2B seller, and they take on the payment delay.
How BNPL helps B2B sellers
BNPL can be useful for B2B sellers in many ways. Let us look at some of them below:
Sellers are guaranteed payment
When a customer makes a purchase, the seller is guaranteed payment from the BNPL provider within a set period. This happens regardless of the customer’s chosen payment terms. This is an obvious benefit for sellers who are constantly hassled by late invoice payments.
Sellers can automate their credit checks
BNPL providers often provide automatic credit checks on behalf of the B2B seller. The moment a customer begins the checkout process, the provider takes on the responsibility of ensuring they have got a decent credit and can afford to pay later. This saves a lot of time for companies, and it reduces the financial risk sellers take.
Sellers can provide a streamlined checkout process
Before, many sellers have a dedicated employee or department for invoicing and credit checking. The process often took days, and customers become frustrated or impatient. Automated credit checks can take place in seconds, allowing customers to check out quickly and seamlessly if they are approved. This creates a better experience for the customer.
Sellers can save time and reduce expenses
When manual invoicing and checking are removed from employees’ to-do lists, they can redirect their energy and efforts into developing the company and generating new ideas. A more efficient workflow can certainly reduce a company’s costs.
How to choose a B2B BNPL provider
If you are looking to implement B2B BNPL into your web shop, there are a few factors you must consider.
Service offering
Firstly, you need to evaluate the provider’s offering. You should investigate the payment terms offered by the provider. Will your customers be paying in instalments? Or will they be paying upfront in 30-, 60-, or 90-day windows? When will you get paid, as a seller? These are all important questions to ask yourself before you commit to a provider.
Integration methods
You should also consider the technical aspect of the service. There are more questions you should ask yourself at this stage, such as: will it be difficult for you to integrate the system into your existing one? Can the method be plugged in with an API or will you need to overhaul your web shop? Will it be difficult to train your employees and educate them on how the payment method works?
