Businesses Want Trade Credit to Be Like BNPL

Buy now, pay later (BNPL) has gained enormous traction with individuals by attracting consumers who are looking to stretch their buying power and de-stress their budgets. It’s a basket of benefits that businesses are also looking to embrace to help manage their own purchasing while also improving their cash flow.

While so-called “net terms” have existed in B2B trade for decades, some of the qualities of BNPL are now catching on in the B2B realm, Dan Zimmerman, chief product and information officer at TreviPay, told PYMNTS.

“I think the first impact we’ve seen from BNPL, and how B2C is influencing B2B, is that it’s driving this change in expectations that net terms should act a lot more like BNPL — real time, digital, fast, easy,” he said. “The new expectations of net terms or direct bills as referred to in B2B are getting changed by BNPL from B2C.”

Benefits to the Seller

On the seller’s side, there are even more benefits from BNPL. When selling B2C, those include increased cart size and increased conversions. Those are being realized in the data that’s coming back from B2C implementations.

When selling B2B, another benefit of BNPL to the seller is that because they are outsourcing this credit line, they’re getting paid faster. Plus, because they are giving the buyer the ability to buy with a credit line that is separate from their credit card and has terms that are further out than the usual 30 days, it builds loyalty.

“So, you can see it also being a sales growth opportunity for businesses once it gets fully implemented in the B2B side,” Zimmerman said. “Cart size, conversion, [days sales outstanding (DSO)], loyalty are all benefits of BNPL going forward.”

Distinctions Between B2C and B2B

At the same time, there are differences between B2C and B2B that will affect the adoption of BNPL in B2B. BNPL tends to be a single-purchase finance vehicle, while B2B customers tend to make repeat purchases. Another difference is that a business may prefer extended terms to installment payments.

“Those things are going to work themselves out in the B2B version of BNPL, but that’s two distinctions that you’re going to see that could be different than B2C,” Zimmerman said.

Once you digitize trade credit, though, “It’s going to be massive,” he said. In Australia, where BNPL has taken off faster than in any other country, BNPL is used for just 2% of B2C transactions. In contrast, trade credit is used for over 60% of B2B purchases, and the version of BNPL for B2B is a digitized version of trade credit.

“Once that’s done, the adoption is going to be much faster and much higher, just because that’s how B2B business gets done today,” Zimmerman said. “It’s starting from a place where that’s the context anyway.”

Opportunity to Outsource AR

In addition to the other benefits, businesses that implement BNPL can also outsource their whole accounts receivable (AR) practice. PYMNTS research shows that 41% of small businesses consider collecting on an invoice to be one of their biggest pain points.

“So, you could see where if you could get a FinTech vendor that could just help you deal with AR completely, B2B, and one of those capabilities is BNPL or this digitized trade credit, well, that’s pretty powerful,” Zimmerman said. “You get the DSO advantages plus you get operational efficiencies.”

One potential hurdle for the use of BNPL in B2B is checking the creditworthiness of a B2B customer. Zimmerman said that’s one of the reasons B2B is tough to do in real time — it requires integrations with partners to get that data.

“That’s some of the secret sauce that some of the FinTechs that are doing this now as a service have,” he said. “They’re creating internal credit scores similar to B2C where they look at a business’s viability over time, and they use different data sources in real time, checking for fraud, checking for credit capability in each one of those businesses.”

Return-on-Investment Perspective

Looking ahead, the rate of adoption of BNPL in B2B is going to depend on the awareness and availability of capabilities as well as the cost element. BNPL transactions are a little more expensive. Zimmerman said they’re worth it because of all their advantages, but at the same time, B2B businesses are very sensitive to the cost of a transaction. That means B2B businesses may be a little more discretionary in the solutions they roll out.

“It’s going to have to make sense from an ROI perspective probably to a greater degree even than the B2C, where there’s kind of this momentum and excitement around it, and it feels like you’re missing out if you don’t have BNPL in your checkout,” Zimmerman concluded. “B2B tends to be a little more rational.”