What Does BNPL Mean For The World Of B2B Payments?
In recent years, Buy Now Pay Later has transformed the retail space as a popular checkout option at online marketplaces and retailer sites. Though most of its offerings are in the B2C segment, BNPL is slowly but surely making its way into the B2B space with compelling offerings.
The B2B payments world is in dire need of change, as many companies still follow archaic credit systems. For example, it can take months for suppliers to get paid in the current scenario. That is why introducing BNPL for B2B payments can revolutionise the business landscape.
Read along to understand the concept of BNPL and how it can affect business payments.
Understanding BNPL Payments And How They Work?
Buy Now Pay Later (BNPL) is a short-term financing facility that allows customers to buy something without paying its costs upfront. Generally, buyers have to sign up with a financial institution that will pay the merchant when one purchases goods with BNPL. Then, they must repay the amount in three or more instalments in a stipulated period.
In India, several online retailers and fintech companies are offering BNPL facilities as a convenient payment method. Lenders offer an interest-free period ranging from 15 to 45 days where one does not have to pay anything. However, if someone fails to make payment within this due date, interest penalties and late fees could be applicable.
Lately, a new form of BNPL has emerged in the B2B sector, where another company offers products and goods on credit. Various large brands, suppliers, distributors and aggregator platforms like KredX are offering BNPL for B2B payments to attract more business customers.
The lender pays the business seller in advance for such payments, and the B2B buyer has to repay the amount within a certain time. For suppliers, it lowers their cashflow burden as their money is no longer locked in unpaid dues. Small business owners get the advantage of getting goods and services without a high upfront payment.
The Need For BNPL In The B2B Segment
An interesting fact about BNPL for B2B payments is that a similar facility called credit transaction already exists. The seller or suppliers often need to offer short-term credit to business buyers. This shifts the cashflow burden on suppliers as much of their owed money gets stuck in unpaid invoices.
Offering these loans presents a range of additional problems for sellers. This includes increased expenses for managing complex accounting and checking buyers’ credit ratings. Moreover, they have to take the risks of default and late fees. Buyers are also negatively affected as many struggle to find suppliers willing to sell goods/services on credit.
This is where BNPL for B2B payments becomes such a necessary tool. It creates a win-win situation where sellers get their payments upfront, and retailers get easy access to products on credit. The B2B BNPL providers act as a vital intermediary between these parties, creating a smooth and successful transaction experience.
These financial institutions improve the sales experience for business customers as they reduce the credit approval time. For suppliers, the lenders help by absorbing their cashflow burden and mitigating the risks of default.
Benefits Of BNPL For B2B Payments
The following are some of the benefits of BNPL payments across the B2B sector:
Decreases Administrative Costs
B2B sellers incur administrative expenses for determining the credit ratings of potential customers. By outsourcing the work and issuing credit to experts in the field, suppliers can save more money on it. Moreover, BNPL adds immense value to transactions with low margins by reducing the delay in payments.
Improves The Checkout Experience
In traditional credit transactions, business customers often have a negative experience as they have to provide information without security and wait for a long time for approval. With BNPL for B2B payments, this experience gets vastly improved due to its seamless purchase experience and quick checkouts.
Better Credit Decisions
Unlike supplier/distributor financing, financial institutions offering BNPL have much better credit decision abilities. They can use the latest technology and an array of data tools to offer real-time credit without taking high risks. It also alleviates a burden from the supplier that is non-core to his/her primary business.
Increases The Average Order Volume
BNPL for B2B payments offers the advantage of higher shopping cart values and less order abandonment. As it offers easy credit to business customers, it allows them to expand their purchasing abilities. This increases the average order volume (AOV) and creates a sustainable growth for sellers.
Improves Customers’ Experience
Finding easier access to financing has always been a major problem for small and medium-sized businesses. BNPL offers a quick and flexible solution with various payment options that can be easily integrated into existing systems. As BNPL providers offer a seamless customer experience, it increases their lifetime value for sellers as well.
Future Scope Of BNPL For B2B Payments
BNPL in the B2B sector is a relatively new innovation and has a lot of room for further growth. India’s B2B commerce space is expected to reach US$1.1 trillion by 2024, so many new players are emerging from obscurity. Many of these small players will find it difficult to get sufficient working capital as they lack balance sheets and banking relationships.
Suppliers and sellers offering BNPL for B2B payments will be able to benefit from this opportunity. This product will be invaluable for merchants looking for short-term credit. However, businesses will need to make several improvements to BNPL to make the most out of it.
Firstly, they will need to offer reasonable credit limits for B2B purchases. They will also want to offer favourable terms for repayment to persuade buyers to do business with them. For a better customer experience, suppliers will want to seamlessly integrate BNPL into their brands and checkout experience.
Just as BNPL has revolutionised the B2C sector, it holds a lot of potential for improving B2B payments. It offers a level playing field for small and medium businesses that otherwise find it difficult to get financing for their operations. By introducing BNPL for B2B payments, a seller can attract all of these buyers without taking risks.