Buy now, pay later (BNPL) - a huge success for online personal shopping – is now coming to online business to business (B2B) transactions. And by making payment easier, BNPL for business could have significant implications for how firms handle cash flow, invoicing and the whole buying process.
BNPL is a function attached to an online checkout, where credit is made available to qualified buyers instantly, with a simple, pre-approved process. Within the last few years, it has become much-loved by consumers - more than a quarter of UK consumers were regularly using BNPL services in 2021, according to a survey by financial data company Equifax.
For business-to-business (B2B) transactions, the pace of adoption has been slower. But once widely available it could be an enabler for much more expansive changes to how firms do business with each other, breaking centuries-old traditions around invoicing and payments and making company purchasing an Amazon-like experience.
What is BNPL for business?
BNPL for B2B means that when a company makes an online purchase – ranging from staples to steel beams - they may be offered 30 or more days to pay at the checkout without their firm going through the traditional manual process of credit checks or customer onboarding, even if it is their first purchase.
It is possible because in the background, when they start the purchasing journey online, the seller will do checks on the buyer, potentially using external business and credit databases as well as data about the type of product being bought.
Özlem Özüner, Commercial Director at Allianz Trade UK & Ireland, says that BNPL for B2B is expected to "quickly scale up", including supporting international export transactions. This means firms could get instant online credit terms when dealing directly with overseas suppliers.
This process is made possible by a new breed of fintechs that manage the digital process and act as instant invoice financing firms. In a BNPL transaction, even though the buyer is on credit terms, the seller gets paid within 24 hours (minus a fee) and payment is collected from the buyer when it comes due.
Read more: Invoice finance: a buyer’s guide
BNPL for B2B: what happens if the buyer defaults?
Default is clearly a more serious issue with B2B BNPL than consumer transactions due to higher transaction values and, usually, a more concentrated customer base. BNPL providers are able to provide instant credit limits depending on the creditworthiness of the buyer and having credit insurance protection in the background.
Allianz Trade has teamed up with BNPL provider Two, to offer trade credit insurance to firms using Two’s services. Allianz Trade analyses the buyers in real time as they shop and offers Two instant trade credit insurance, reducing the risk of default.
BNPL for business: what does it mean?
While businesses have been offering credit terms for centuries, many of the world's most famous tech investors believe BNPL for B2B is a significant opportunity.
The backers of Two, for example, include Sequoia Capital, the Silicon Valley firm that was an early investor in WhatsApp, Google, Airbnb and many other tech success stories. There are now about 10 fast-growing European BNPL for B2B providers, with at least one valued at £500m.
Stavros Tamvakakis, a Co-Founder of Two, says BNPL for B2B means “Business buyers get the payment terms they need, plus a seamless purchasing experience.”
A global survey of businesses that purchase hardware or software, demonstrates how business procurement is moving to “the age of the self-serve buyer”. Business buyers are increasingly behaving like consumers: relying on online reviews, demanding transparent pricing, and being turned off by traditional sales techniques such as cold calling. All of these trends are facilitated by the payment convenience of BNPL for B2B.
How does this affect SMEs?
An all-party Parliamentary Group in 2021 talked about “a selling revolution” as B2B purchasing moved online - presenting both opportunities and threats to SMEs.
As buyers, SMEs that are credit-worthy will find it easier to buy online, allowing easy shopping around for better deals or finding products that add extra value.
As sellers, SMEs should find it easier to deal directly with customers online, with the B2B BNPL provider doing the work previously performed by their internal credit control and accounts receivable teams.
Özlem says: "This BNPL offering is an important development for trading SMEs. It allows them to get deferred payment terms online, shop instantly and expand their business with e-commerce merchants."
Read about how trade credit insurance can help your firm, here.