To build an e-commerce experience that will attract and retain B2B buyers, it is imperative that merchants make sure the experience dovetails with all sales channels and that they provide their customers with as much choice as possible at checkout. B2B sellers who offer more payment flexibility increase the probability of receiving a larger share of wallet from their buyers.
One of the growing alternative payment options for consumers is Buy Now, Pay Later (BNPL), also known as trade credit, which is the original BNPL for businesses. Now, more than ever, B2B buyers are looking for the same type of efficient and convenient online transactions with payment terms. But while the original concept of BNPL is the same – purchasing with the intent to pay in installments or on credit – there are a few key differences in the business world.
To learn more about the similarities and differences between BNPL for consumers and businesses, and why offering payment options is critical to meet B2B buyer expectations and open additional revenue options, PaymentsJournal sat down with Brandon Spear, CEO of TreviPay, and Steve Murphy, Director of Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.
The current state of business BNPL
Online B2B sales are here to stay. According to McKinsey, B2B businesses are no longer just testing the waters when it comes to their e-commerce offerings. 32% of respondents now rank e-commerce as the single most effective purchasing channel, compared with in-person transactions at 23%.
More than one-third of manufacturers project growth of at least 25% in B2B e-commerce sales over 2021-2022, according to data in “The State of International E-Commerce in Manufacturing” report by e-commerce research and technology firms Copperberg, Intershop, and Evident.
However, the introduction of BNPL into the B2B world is not a straight path. “As with a lot of new financial products and services, there’s a lag of some variable length before adoption expands into B2B,” said Murphy. There are multiple reasons:
- Lack of experience with B2B use cases among programming and entrepreneurial populations
- Extended B2B sales cycle times – for consumers these can be instant, but for businesses it can take months, if not years
- Increased risk that comes with greater size and scale compared to consumers
“The common factor is complexity,” explained Murphy. “A B2B purchase is predominantly multi-step versus a consumer purchase, and business financial health is more difficult to assess for a business than a consumer.” If it is harder to gauge how reliably a business can pay off its loans, then it is harder to introduce a BNPL option.
Complications for providing frictionless BNPL experiences to businesses
The concept of BNPL is not exactly new in business, even if the BNPL label is. Trade credit has been used in business long before it had a name; it is the modern way for businesses to deal with IOUs. The classic trade credit example is known as “2/10 net 30,” meaning a buyer will receive a 2% discount on the net amount if they pay the invoice in full within the first 10 days of the invoice date, otherwise the buyer will owe the full amount in 30 days. BNPL is a simplified version of that arrangement, whereby you might pay 25% down and owe the rest over three months.
“The next logical expansion area for BNPL is in small business, which is what we’re starting to see now,” noted Murphy, since small business might behave similarly to a single consumer. “As you move up in the business size into the middle market, where demand will be more vertically targeted, the experience will need to be flexible. It’s going to need to be mobile, and it’s going to need to be fast.” Suppliers will want to make the BNPL financing choice on the part of buyers an easy and frictionless one.
The move to B2B adoption can be tricky, though. Businesses do not have a “credit score” to assure they are good for the loan the way consumers do, and gathering information is a much more sprawling process since there are so many individuals and components within businesses. “Increasingly common is this idea of business identity theft,” Spear added. “We’re seeing a very significant rise in businesses for bad actors to pretend to be either part of a real business or actually trying to take over the email addresses or hack elements of that company’s infrastructure to apply for lines of credit.” The increasing shift to e-commerce makes this type of fraud all the more common.
Additionally, the sheer dollar magnitude of B2B purchases is materially different from that of consumers. “Obviously, the suppliers love it because the average order value is much higher than what they might typically see,” Spear pointed out. “But there’s a lot more inherent risk in trying to validate whether that’s a fraudulent application.” Multi-factor authentication (MFA) is much more challenging when there are multiple people who are authorized to make purchases on behalf of a company’s credit line. On top of that, the use cases are generally narrower, applicable mostly for capital purchases (e.g., computers in bulk) but unlikely to replace traditional trade credits.
What BNPL implementation looks like for businesses
Despite the inherent obstacles, there are solid ways to introduce BNPL into the B2B world. “There is access to more data than there ever has been in the past,” emphasized Spear. “More and more data repositories are accessible via APIs, which is one of the key things that has basically powered the rise of Buy Now, Pay Later for consumers… those sorts of interconnections exist and are available for a B2B-type transaction.” The infrastructure for such a transaction already existed for trade credits, and the process is not so different. Procurement might be one area of opportunity going forward.
Executives exploring financing options will need to assess the viability of business BNPL. The fees tend to be 1.5-2x larger than with a credit card, so they will need to determine if the expected increase in order value is worth the cost. “The purchasing process has many different stakeholders,” added Spear. There is the person making the purchase, the subject matter expert, the budget controller; for a smaller business, these might all be the same person. “I would expect BNPL for business adoption to happen first in the SMB customer base,” Spear continued.
As BNPL companies change, they will use market models to try to target new segments or customer use cases, and potentially uncover categories where BNPL fits well. “You have to do the analysis first and validate and confirm exactly which segments of your customer base you’re going to target this to,” clarified Spear. “Once you do that analysis, then there are really good technology choices and service providers that can help you execute against those strategies.” E-commerce setup, for example, is much easier than dealing with physical points-of-sale, so e-commerce tends to be prioritized.
Finally, it will be worth watching interest rates over the next two years. “It’s going to be ‘prime rate plus’,” Murphy predicted. Paying in installments becomes a riskier venture when interest rates are higher. “The customer segment that’s likely to get squeezed the most is going to be the small business,” concluded Spear. “As a consequence of that, I think there’s going to be more and more demand from that category of buyer to have more choices, more optionality, and be able to spread the payments out more.”
