Buy Now Pay Later for the B2B transactions

While B2C lending has experienced a digital transformation, the B2B credit procedure continues to be inefficient, time-consuming and a barrier to the B2B transaction process. 

Fintech firms are taking control of the process, digitizing it, and integrating it into e-commerce checkout. Some of these companies identify this solution as BNPL for B2B, while others call it embedded net term or modern invoice financing. Fintech removes friction in B2B payments by adding value at every stage of the process, including customer onboarding, credit underwriting, disbursement and repayment mode. One of the major strengths of fintech is its focused product offering and most importantly its fully digital operating landscape.

The main goal is to provide a consumer-like BNPL experience, bringing supply chain finance to any size company while taking into account the specific needs and challenges of business purchasing. It is anticipated that the market for BNPL in B2B transactions in Europe and the U.S. will reach $200 billion over the next few years. Small and mid-size businesses are particularly interested in BNPL solutions since their bottom lines are being destroyed by record inflation, rising loan rates, and capital costs.

Table of Contest

While B2C lending has experienced a digital transformation, the B2B credit procedure continues to be inefficient, time-consuming and a barrier to the B2B transaction process. 

Fintech firms are taking control of the process, digitizing it, and integrating it into e-commerce checkout. Some of these companies identify this solution as BNPL for B2B, while others call it embedded net term or modern invoice financing. Fintech removes friction in B2B payments by adding value at every stage of the process, including customer onboarding, credit underwriting, disbursement and repayment mode. One of the major strengths of fintech is its focused product offering and most importantly its fully digital operating landscape.

The main goal is to provide a consumer-like BNPL experience, bringing supply chain finance to any size company while taking into account the specific needs and challenges of business purchasing. It is anticipated that the market for BNPL in B2B transactions in Europe and the U.S. will reach $200 billion over the next few years. Small and mid-size businesses are particularly interested in BNPL solutions since their bottom lines are being destroyed by record inflation, rising loan rates, and capital costs.

What Is Buy Now Pay Later (BNPL) for B2B transactions?

What all firms ultimately demand is cash flow flexibility.SMEs typically get the capital they need through traditional lending models. But because lenders offer high borrowing rates, these models are quite pricey. In simple terms, BNPL is a form of short-term loan. It’s a payment option that is offered to business buyers at POS  ( point of sale ). This option allows delay of the payment or spreads the cost of buyers’ purchase over time, charging low interest from the business while merchants are paid upfront resulting in improved cash flow for all parties. This can be a real advantage in the B2B space, where businesses often need to make large purchases, but may not have the liquid cash on hand at the right moment to do so. It’s a great way to manage your cash flow and keep your business running smoothly. BNPL B2B is paving the way for making a lending cost-effective financing solution for SME business.B2B BNPL is solving for B2B cash flow, speeding up business credit approvals and onboarding more new clients faster, with greater certainty.

How does BNPL work for business?

That’s a high-level overview of how BNPL works in the B2B space

Companies that want to offer BNPL to their customers need not worry about becoming a fintech company themselves, as this is a service that can be provided by a third-party provider. They will set up a payment method and make it available to your customers when they check out online or in-store.

A typical BNPL process is as follows:

• The buyer making the purchase will have to go through a quick soft credit check.

• The BNPL supplier pays the merchant  or business owner the total amount for the product.

• The buyer is obliged to repay the third-party supplier BNPL within a certain time in a series of pre-agreed payments.

The third-party service provider determines the terms and percentage of payments that the customer pays. For example, some providers allow customers to choose how much they want to pay over three to twelve months, while others set a set number of payments.

Advantages of BNPL for B2B Merchants

When you’re looking to expand your business, it’s important to consider all of your options. One of the most popular options these days is buy now pay later, or BNPL.

This financing option has a lot of benefits for businesses in the B2B space.

Bain &Co identified nine benefits that they measured in the survey, grouped into the categories of sales, customer acquisition, customer experience, and costs (see Figure 16). Some 90% of merchants have experienced at least one benefit.https://www.bain.com/insights/assessing-benefits-and-challenges-bnpl-report-2021/

Some of the benefits of BNPL for businesses include:

Expanded customer base

According to Bain & Company, some 53% of merchants reported experiencing this benefit, the second-highest response. BNPL providers conduct a significant amount of advertising and marketing, which stimulates demand among consumers for BNPL services.

Increase Average Sales

With BNPL, businesses can purchase larger orders and take advantage of volume discounts.

Given the potential for increased sales, it’s no wonder that many B2B companies are beginning to explore the BNPL option. With BNPL, you can quickly and easily offer customers the convenience of buying your products with an installment plan.

Build Trust and Customer Loyalty

Not only does doing so increase sales, but it also helps to create customer loyalty as customers appreciate having more payment options. This fosters a strong relationship between you and your customer that can help bolster long-term customer loyalty and it builds trust with your customers.

They know that they can order from you without having to worry about being charged right away, and this helps to increase customer satisfaction and cultivate a long-term relationship. Plus, it makes it easy for them to budget their spending by breaking down the cost of each purchase into manageable installments.

There are a few ways that you can increase customer loyalty by suggesting Buy Now Pay Later options. For starters, you can make it easy for customers to apply for financing. You can also offer special promotions to those who use BNPL, like giving them free shipping or a discount on their purchase.

Another way to increase customer loyalty is to keep track of their order history and offer them incentives to continue purchasing from you. For example, when it comes to repayment, you can either set a fixed repayment schedule or allow for more flexibility by allowing customers to make payments as often as they need to and in any amount. This makes it incredibly easy for B2B companies to offer a payment plan that works best for both them and the customer.

Credit Check

The primary point of differentiation in B2B solutions is the underwriting process. Your ‘credit team on call’ should be a solid solution, delivering an efficient yet reliable procedure to evaluate each and every one of your customers’ credit applications Poor quality and unreliable underwriting may result in lost sales opportunities as low-risk customers were rejected or high-risk purchasers were incorrectly approved.

Advantages of BNPL B2B for Buyers

Easy  access to  working capital

Through buy now, pay later, buyers have entry to low or no-cost short-term financing on their purchases.

To start, it’s a great way to avoid tying up your capital in inventory. You don’t have to worry about buying products upfront and then waiting for them to sell—you can simply pay for them as your customers order them.

BNPL can help businesses get the funds they need to grow quickly and expand their operations.

Improved cash flow

In order to improve business profits and financial stability companies must prioritize cash flow. Even if a buyer has the ability to make an up-front purchase, B2B BNPL offers them the option of availing of working capital more conveniently and affordably. 

Larger purchases

BNPL can help to unlock the door to these larger purchases, and it can help businesses to get the supplies they need without having to wait.

Is Buy Now, Pay Later associated with risks for B2B transactions?

BNPL may sound like a great solution, but there are specific factors that must be taken into account

Risk analysis and management

The most notable is that not all customers may be eligible for a BNPL solution. In order to accept BNPL payments, customers must pass credit checks and identity verification processes with the payment provider to ensure they can repay their debt in the specified time. This might not be an issue for many customers, however, it could mean that some sales opportunities may be lost.

Opt-out of BNPL payments

In addition, buyers may choose to opt out of BNPL payments once they’re approved, meaning sales opportunities are lost. That’s why it’s important for businesses to make sure the terms and conditions for opting in and out of the service are clearly listed during checkout. Finally, businesses accepting BNPL must pay attention to any late or defaulted payments, as this can impact a company’s cash flow or financial standing in the long term.

Payment Collection  Flexibility

When exploring BNPL solutions for your business, consider researching what rates and terms your customers prefer to ensure they are comfortable with any payment plan you decide to offer. Also, consider implementing other marketing campaigns or promotions to further incentivize customers when they use the payment plan option.

Whatever you do, make sure that you’re clear about the terms and conditions of using buy now pay later. This will help avoid any confusion or misunderstandings on the part of your customers.

Different Types of BNPL Models

The various Buy Now Pay Later models include Point-of-Sale (POS) financing, open-end credit, and net term.

Let’s take a closer look at each one.

Point-of-Sale (POS) or embedded financing is where a merchant offers the ability to pay interest-free easy installments over time through the merchant’s checkout process  Usually done as off-card payments this option allows customers to make immediate purchases without having to wait for approval from a traditional lender.

The loan is paid back over a set period of time, usually within a few months.

Open-end credit line enables customers to purchase now and pay later with an agreed-upon payment schedule and interest rate. This type of BNPL model is often used for larger purchases, such as business technology or services since it requires more upfront information from the customer. The loan is paid back in instalments, and the borrower can borrow more money as needed (up to a certain limit).

Net term ( net 30/60/90 )

Giving net terms is no longer a choice; it is a necessity. Due to supply chain problems, price competition, and a number of other factors, your customers must be able to purchase things on credit and make payments whenever it suits them. Companies that don’t give any net terms upset their customers, create negative impressions, and lose business. Offering choices for 30, 60, or 90 days before forcing payment of an invoice can support the health of your customer’s business and consequently, your own.

How to Get Started With BNPL

First, it’s important to understand the distinction between BNPL platforms for consumers and for business customers. Consumer BNPL platforms are more established and account for the majority of its market share. Business-focused providers are emerging, but they come with their own added complexities.

Next, scope out the features available on BNPL platforms. They range from payments at checkout to post-sale payments that can be customized by duration and frequency. Look into the different fees associated with these services so you can determine which one works best for your business needs. You’ll also want to make sure that your customers are aware of all payment terms before making a purchase.

Finally, look into ways to promote your new BNPL platform—especially if you’re offering unique incentives that appeal to a larger base of customers. Think about integrating the payment solution into your website and make sure it’s prominently displayed in your checkout flow so that customers know about it right away.

FAQs About Offer Buy Now Pay Later to Customers

Now that you’re getting more familiar with why B2B merchants should offer BNPL, let’s dive into some frequently asked questions about the process for getting started.

The first and foremost factor to watch out for when offering BNPL services is the payment gateway you choose to process transactions. It’s important to make sure it supports BNPL, and if it doesn’t, you can easily switch over without any disruption in service.

In terms of cost and fees, these are usually structured as a flat rate or percentage of every transaction – so be sure to read through the fine print of your payment processor carefully!

Also pay attention to potential compliance issues like identity verification, which can help protect customers against fraud. This technology is becoming increasingly popular due to its convenience and accuracy – something that definitely shouldn’t be overlooked.

CompassWay Solution

CompassWay solutions are tailored to B2B players, whatever the sales channels: marketplace, an e-commerce site, a store network, click & collect.

CompassWay BNPL’s procedures are fully automated and can be customized to business needs, aligned with a company’s sales and marketing strategy.

CompassWay’s modern platform can you go to market with the latest financial products and empower your business.

Solution Breadth

Modular, flexible and zero code lending platform

Fast Start

Start fast with BNPL core services which can be made available in weeks. Integrate our API-first solution to your existing ecosystem and move to production quickly.

Ease of Integration

 A plug-n-play solution set is available to help with swift integration into merchant sales platforms .Our  solution  also allows you to rapidly integrate with other providers in the  value chain to extend the BNPL service.Thanks to SaaS deployment solutions are very simple to implement.

Fast and Responsible Credit Check Decision

AI decision-making engine makes quick and accurate credit decisions using standard and alternative scoring. These support “soft” credit scoring in BNPL and are used to create pre-approved lists of possible borrowers or to score customers who wish to sign up for BNPL.

Operational Cost

Operations costs are modest and scale with business volumes, making it simple to expand at the rate you choose.

So if you’re thinking about starting a buy now pay later program for your business,

take a free trial CompassWay free-trial and a  closer look at the CompassWay BNPL solution.

Conclusion

B2B is going through a  payment landscape transformation in recent years from paper and pen to fully embracing digitization.

There’s a lot to think about when starting a B2B buy now pay later program – from the products, you offer to the customers you target. But with the correct planning and execution, a B2B buy now pay the last program can be a valuable addition to your business and the next logical step in developing a customer loyalty program.

It is predicted that the market for BNPL in B2B transactions in Europe and the U.S. will reach $200 billion over the next few years, in contrast to slowing growth in B2C BNPL. BNPL B2B solution is a real game changer.

Author

Valentin Lazepka LinkedIn

CEO CompassWay