Buy Now, Pay Later (abbreviated to BNPL) is an alternative payment method that allows buyers to make a transaction immediately while delaying payment. Depending on the BNPL provider, buyers can pay later in equal installments, or they can pay the total amount 30, 60, or 90 days later.
The rise of BNPL for B2B
BNPL used to be exclusively within the B2C space with a millennial and Gen Z user base. However, the pandemic has changed things significantly. Many B2B businesses had to take their business online due to the impossibility of continuing operations in person, causing them to encounter new pain points and turning to new solutions.
The rise of BNPL in the B2B space has been meteoric. From healthcare to construction, BNPL providers have been making a splash by providing installment payments. These days, the alternative payment method is seen as a market with the potential to hit $1 trillion US. More and more companies are integrating BNPL into their online shops and letting providers take over their invoicing and transaction processes, and it has been going well.
The Advantages of B2B BNPL
BNPL is not a new concept at all, but applied to the B2B space, it does bring many advantages for both buyers and sellers. Below, we take a look at some of the most common ones, and the pain points they solve for both parties.
B2B BNPL improves cash flow for sellers
One of the most substantial advantages of integrating and using B2B BNPL for both buyers and sellers is the markedly improved cash flow they experience.
With B2B BNPL, the BNPL provider facilitates all transactions and acts as the middleman. When a buyer makes a purchase and chooses to pay later, their chosen payment terms do not matter to the seller. Whatever payment terms they choose, the BNPL provider will make an upfront payment to the seller independently.
With BNPL, not only do sellers no longer need to be chasing late payments and invoices, but they also do not have to worry about not getting paid upfront. This leads to an improved cash flow and less time spent on financial administration, which is a huge win-win for sellers.
B2B BNPL improves cash flow for buyers
There is also a marked improvement in cash flow for buyers who use BNPL solutions in the B2B space. As the payment method spans industries and fields, it is imperative for us to examine a variety of cases.
Consumer fintechs are some of the greatest areas in which B2B BNPL has made a difference. For many up-and-coming technology firms who require making big ticket purchases, BNPL has helped them remain adaptable with its flexible payment terms.
There is also a notable advantage in the construction and manufacturing space with BNPL. Particularly, for the many builders who require construction materials to be bought in advance to complete their projects. These buyers turn to vendors for these materials but have difficulty maintaining a healthy cash flow since they themselves do not get paid before completing projects, which can take months.
With B2B BNPL, builders and their businesses can make instant transactions and receive materials upfront. They can pay up when their own clients have paid them post-construction projects. This greatly improves their cash flow, and they can focus on expanding their business.
B2B BNPL creates an alternative for buyers
Seller?s use of BNPL also gives buyers an alternative payment method for online transactions.
B2B buyer expectations have increased dramatically over the years, especially in the area of e-Commerce. As more and more business buyers do their decision-making and transacting online, they expect not only better service from sellers, but also more buying options.
Traditional digital payment processing options include wire transfers, bank transfers that go through an automated clearing house (ACH), and credit cards. While all these methods present clear benefits of security as they are tried and tested, not all buyers want to use them due to slow transaction times and high administrative costs.
Studies by GoCardless show that while American B2B buyers prefer using corporate cards to make transactions on behalf of their businesses, the same cannot be said for their European counterparts. In Europe, corporate cards have not achieved widespread acceptance, nor do B2B buyers on the continent prefer them.
As B2B sellers often face fewer, but more valuable, buyers, it is crucial for them to retain the loyalty of existing customers. The use of BNPL creates one more way of payment, which means greater flexibility for the buyer. With fast transaction times and low administrative costs, BNPL can appeal to a new demographic of buyers.
B2B BNPL saves sellers time on admin
Switching the focus back to B2B sellers, one of the more notable advantages BNPL presents is the time saved on financial admin. When a seller utilizes BNPL in their online shop and their buyer decides to defer payment, the BNPL provider usually takes care of the entire transaction process.
In other words, the BNPL provider becomes the entity to issue the buyer the invoice, and they are also the ones responsible for conducting credit checks to ensure the buyer is trustworthy. This alleviates a lot of burden for B2B sellers.
Manual credit checks are costly, and most of the time, difficult to perform. They can take seller days to carry out, especially when they are conducting business with first-time buyers. After approving their buyer, sellers also must draft and issue invoices. If the buyer does not pay on time, the seller then must expend more energy chasing late invoices.
All this time spent on financial admin is reduced when the seller partners with a BNPL provider, who takes the reins. The seller is then free to focus on growing his business.
B2B BNPL increases transaction approvals
The final advantage B2B BNPL brings to the table is the fact that they can increase transaction approvals. This is great news for both buyers and sellers.
Often, many start-ups and small companies with no set track record of making big-ticket purchases are doomed to be cast out by the payment industry. When sellers cannot find information on their buyers, they have no choice but to reject their transactions due to financial risk.
When this happens, the seller loses a sale, while the buyer loses the opportunity to make a purchase.
Many BNPL providers are looking to change this and provide increased accessibility in the B2B space. One notable case is that of Biller solutions, a BNPL provider that uses AI to conduct credit checks in their approval process. Their reasoning for using machine learning is simply that AI can cover a bigger scope and find more data online, in a much shorter time frame.
This means the seller gets to complete more transactions. It also means they can approve these transactions at a much faster speed than it would take them manually. Increased approval rates and fast approval processes translate naturally to more satisfied customers, which can increase loyalty and lead to repeated purchases and bigger transactions over time.
The bottom line
B2B BNPL is a relatively new phenomenon, but it is catching on fast, due to the advantages it presents to both business buyers and sellers. As the global digital payments market rapidly grows, more and more fintechs are looking to solve the pain points that come with this development. B2B BNPL offers the flexibility and control that many businesses need to expand their ventures, with the potential for improved cash flow for both sides. This makes the solution highly appealing, and it is indeed one area to watch closely in the near future.