The following is an external article written by Balance, an embedded B2B payments partner for merchants and marketplaces.
Consumer-like trends are naturally making their way to B2B. Buy-Now-Pay-Later (BNPL) is the perfect example. But as with any trend, business leaders need to understand what to take note of and what to prioritize into their digital strategy.
A major reason BNPL is only now becoming popular is due to a rise in new payment companies leveraging the popularity garnered by B2C BNPL to spearhead interest in a B2B solution. And all of that is great, but it’s important to understand what BNPL really means. So, we’ll clear up some myths around BNPL for B2B and explain what’s really important to know when it comes to the B2B ecommerce payment experience.
So, where did the trend start and where is it headed?
For consumers, companies like Klarna and Affirm made BNPL go viral. These fintech companies normalized paying online with installments. In B2B however, paying later, with net terms or trade credit, is just how commerce works. Businesses have always needed methods to delay payment in order to protect cash flow. Most B2B purchases today are made with net 30, 60, or 90 day terms.
But, it’s by no means a B2C-like process. For businesses to buy now and pay later, they have to submit lengthy applications and wait to be approved for payment terms. And if the vendor decides to provide credit for the buyer, the risk and cost is on them.
Now, all of that is changing. Fintech companies are owning that process, digitizing it, and embedding it into ecommerce checkout. Some of these companies choose to call their solution BNPL for B2B, others embedded net terms, or in-cart financing. They are all names for the same thing. The goal being to create the consumer-like BNPL experience–while accounting for the unique complexities and requirements that exist in business purchasing.
For both the vendor and the buyer, it’s a win-win. Unlike depending on internal underwriting teams to assess buyers and extend credit, embedded net term solutions can speed up credit approvals and help onboard more new customers. Plus, there’s a shift in liability in the case of non-payment. On the buyer side, they get to pay on a schedule that meets their needs, and seamlessly do so at checkout.
The BNPL trend is a perfect example of the consumerization of the B2B checkout experience. Procurement roles are largely being filled by millennials. Their buying habits have been formed by the Amazon’s and Walmart’s of the world. So it’s no wonder why BNPL sounds so attractive to business buyers–it reminds them of the convenience of consumer shopping. It lends itself to the ease and one-click nature of ecommerce, that has yet to be the standard in B2B. Which is maybe why BNPL sounds so strange in the context of B2B. B2B transactions couldn’t be more different than in B2C. According to McKinsey, about 65% of B2B companies across industries are now fully transacting online. But what that looks like varies from company to company. For some, transacting online might mean taking a credit card number over the phone. For others, it might mean only offering credit card payment for small order values and requiring phone orders for larger transactions.
And it’s not because they don’t want something better for their customers. It’s because B2B payments are complex. If buyers are used to paying with terms, they aren’t going to want to be forced to pay any other way. They want the convenience of terms, but with the same ease as entering credit card details.
Is BNPL enough?
The major distinction about BNPL for B2B is that it’s not a nice-to-have. In B2C, many consumers can make do with credit or debit card payments. But in B2B, paying with terms is the standard. If businesses can digitally provide that preference, they have a lot to gain. Businesses can enable self-service purchasing, without losing important functionality intrinsic to B2B buying. Plus, it’s a critical way for buyers to have more cash flow, while the seller merchant can grow AOV and conversions. BNPL can drive loyalty and keep customers coming back to that digital experience.
But, there are no silver bullets. B2B payments need to cover a number of needs and business models. For example, B2B marketplaces have their own set of payment needs and challenges. On top of offering terms, marketplace operators need to automate payouts to vendors, onboard new buyers, all while managing compliance and monetizing each transaction. One thing is to offer BNPL as a vendor to an existing customer base–it’s another thing to provide financing across multiple vendors for a wider and potentially unfamiliar network of buyers.
So before considering a BNPL solution, it’s important to first understand how payments will fit into the ecommerce journey and what kind of payment experience your customers are expecting.
What should I take away?
Payments, along with many other aspects of the digital journey is new territory for businesses moving online. And with the B2B space becoming crowded with dedicated solutions, it can be hard to know what’s worth the investment, and what’s not. BNPL for B2B is an oversimplification of the complexities of business transactions. Cash flow optimization, A/R automation, access to capital–are all top of mind for merchants. BNPL won’t solve everything. It does play an important part in helping manage the cost and experience of the buying and selling process. And as far as digitalization goes, BNPL offerings are an important signal to customers that the B2C-like simplicity of buying is making its way to B2B. But for businesses to truly benefit from a B2B ecommerce payment solution, BNPL is just the start.