It seems ironic that Buy Now Pay Later (BNPL) offerings are considered a touchstone of customer-centricity in today’s highly sophisticated payments sector. In-store credit has been present across B2C payments for as long as people have been buying goods and services. Yet, with a consumer-friendly, app-based interface, BNPL has seemingly sprung from obscurity to become the ultimate consumer-centric offering in recent years. So much so, that banks are now going head-to-head with Klarna, Affirm and Afterpay to get a piece of the pay later pie.
However, one useful lesson that in-store credit’s journey to mass popularisation via technology can teach us, is the stark difference between B2C payments, and B2B. It is a timely reminder that B2B payments are in dire need of change.
B2B payments, when compared with B2C, are positively archaic. The time suppliers wait to be paid for invoices they are owed is the perfect illustration of this. It often take months for suppliers to be paid.
This is because in B2B, where the buyer is a corporate, the default process is typically a “credit” transaction, meaning corporates almost always buy now, pay later – with payment terms of up to 30, 60, 90 or 120 + days. Why is that?
Firstly, BNPL is seen by corporates to give them a financial advantage, enabling them to hold on to cash (working capital). Secondly, it gives them the chance to check that the goods and services are acceptable (process).
Sellers in B2B would love to have the option of an instant “cash transaction”. With the technology now available, it is straightforward to facilitate a “sell now, paid now” (SNPN) option, without impacting the two reasons why Buyers insist on BNPL (working capital and process).
SNPN solutions can be financially beneficial to both sellers and corporate buyers. Although holding onto cash is often seen as a “free loan” by corporates, this short-term gain is saddled by the long-term impact of the higher cost of goods sold by paying for the suppliers’ finance cost. BNPL is also financially damaging to the supplier, as the money doesn’t reach the supplier until the buyer has accepted the goods or services which typically takes weeks or months.
In B2C, if I buy a pair of shoes on the internet, money flows in a “cash” transaction, and if I ultimately choose not to accept the shoes, then the transaction can be unwound on an exception basis.
Until now, this hasn’t existed in B2B. With machine learning, however, it is possible to precisely assess the probability of recovering any overpayments and identify the very small number of transactions likely to be problematic. There is no longer any need for a B2B payment to be contingent on the buyer accepting the goods or services. B2B can be just like B2C. And financing can be provided by a 3rd party, so that the Buyer’s working capital is not impacted.
By using machine learning to accurately predict future revenues and price risk, it is possible to automatically screen B2B transactions at the point of sale and allow them to be unwound on an exception basis. This means that every seller can have the choice to be paid when they sell, not later. Data makes it possible.
Of course, even with the technology at their disposal – and it is – corporates still need to recognise the need for change and take action to use it. This requires a cultural shift in attitude across B2B payments. If the events of the pandemic aren’t an impetus for change across supply chains, then what is? The time has never been better to use machine learning to improve payments between businesses and in doing so, create more resilient supply chains.
BNPL probably won’t go away anytime soon. Whether that’s good or bad for consumers remains to be seen and will no doubt continue to attract scrutiny and debate from both sides. In lieu of a definitive answer, we can take one positive learning from the frenzy, and apply the lessons of BNPL to the business-to-business payments world.