B2B Joins Buy Now Pay Later… (At Least It Should)

The allure is exciting for consumers that is for sure. We go to our favorite travel site to look up tickets and we see we can go on our junket for less than $35/month. Wow! I guess I CAN afford it after all. Or, we can buy that new flooring with the reclaimed redwood for just $150/month. Oh yeah, we need that now.

Why should this only be for B2C transactions? Well, at this point, it may not be only for the consumer.

We are starting to hear rumblings of BNPL in the B2B world. And why not? The B2B eCommerce payment market — $4 trillion and growing — is ripe for transformation. Business buyers want the same digital options they get as consumers.

And, business merchants are looking for every opportunity to make their customer relationships stickier, increase average order size, and capture a larger share of wallet. A match made in eCommerce heaven.

Financing has always been a challenge for small and medium-sized businesses (SMBs), and COVID has only exacerbated the problem. According to the Biz2Credit Small Business Lending, overall loan approval rates in December 2020 were down over 50% vs. December 2019. Face it – small businesses need more flexible alternatives to traditional business loans that are better suited to their specific needs.

Until COVID, a surprising percentage of B2B commerce still took place partially or entirely via traditional channels such as in-person sales, assisted selling, distributors, and phone. In fact, approximately 80% of B2B payments continue to be made via check. (For an ACH processor, this number hurts).
But, with the dramatic shift to online buying (brought about by a forward pushing consumer market, and of course exacerbated by the COVID pandemic), just as we did at ACHWorks, the B2B merchant community has made strengthening their eCommerce presence a priority. But the ability to incorporate automated financing “in purchase” for B2B transactions is fundamentally different and more complex than BNPL for consumers:

– B2B customer relationships are significantly more complex. The marketing and selling process is longer and often involves multiple channels that include some level of managed sales.
– SMB transactions that are riskier for the seller. The amounts financed tend to be larger (ranging from a few thousand dollars up to several million) than consumer purchases, which average closer to $1,000. Needless to say, the price of making the wrong financing decision is much higher.
– Approving financing for B2B purchases in real-time is highly complex. The array of data available to alternative lenders demands a specific type of risk-predicting expertise. Larger purchases require more financing options – in terms of rates, length of time, payment schedule, etc. — and consideration of customer relationships, inventory turnover cycles and purchase history are important requirements.
– The fraud, legal, and compliance requirements are also more significant – from Know-Your-Customer (KYC) to Know-Your-Business (KYB) to Beneficial-Ownership (UBO). There are also prohibited industries
– Integrations with financial systems and data reconciliation are more complex and mission-critical.

However, by automating the offering and payment management (ACH) of in-purchase financing, B2B merchants have the opportunity to:
• significantly enhance customer loyalty,
• increase average order value,
• reduce risk,
• streamline revenue recognition,
• improve cash flow, and
• create important operational efficiencies on the backend.
Maybe most importantly, it frees B2B merchants up to focus on growing their business instead of managing payments and financing.
It’s coming, and soon…Are you ready? We can help
(more info soon in next post)