For the longest time, only B2C products and services had easy-to-use buy now pay later programs. Of course, B2B providers still offered their clients pay later options in the form of trade credit. But it wasn’t cheap or easy and very few could afford to run an in-house BNPL program given higher credit risks, management overhead, and overall operational effort.
But technology evolves and it’s now easier than ever for B2B companies to implement and run an efficient and risk-averse BNPL program without spending a fortune on a custom software solution.
What we’ll cover in this article
- The size and state of B2B BNPL business opportunity
- The business types and credit models for a B2B pay later program
- The benefits of offering B2B BNPL in-house
- Implementation challenges and how to overcome them
Before we proceed, wanted to check if you (or your staff) would like this white paper with all you need to know to offer pay later financing to your customers in-house.
Buy now pay later for B2B companies – current landscape
In 2021, $84 trillion in B2B payments were processed. This figure is predicted to grow to more than $100 trillion by 2025. And while the consumer finance space is swirling with pay later options, the B2B space lagged until very recently. Main reasons listed by business owners on the fence and implementing B2B pay later options are:
- The company deals with large unstandardized, multistep deals. Evaluating creditworthiness takes too much time and effort and even then – the risks are too high
- BNPL automation needs of a B2B company are a lot more complex than that of a B2C company. The cost of meaningful automation makes it hard to turn a profit on the pay later program
- Reliance on highly customized home-made or outdated legacy software makes it hard to integrate with new solutions
All of the above held true until recently when technology became more accessible and the younger & technology-driven users climbed the corporate ranks, generating a new wave of B2B pay later requests. The size of the opportunity and the soaring demand made the advent of pay later to the B2B space inevitable.
So why did it take so long?
Well, it took lending technology some time to digest the whole B2C BNPL space. And no wonder, because it’s huge. Valued at $90.69 billion in 2020, the B2C pay later market is projected to reach $3.98 trillion by 2030. But now the BNPL technology has matured enough and gained extensive B2C experience, it’s ready to automate the more sophisticated and complex B2B processes with the same level of efficiency.
For a point of reference, Statista shows that the global business payments market is $125 trillion, while the global consumer payments market is only $52 trillion. The proportion of B2C vs B2B BNPL markets is likely even more drastic.
In addition, according to The Federal Reserve Payments Study, for B2B transactions, the average ACH debit transaction was $31,118, and the average ACH credit transaction was $9,349. And the average consumer debit card and credit card transactions were $44 and $57 in 2018, respectively, according to Federal Reserve Bank services.
But despite all the money in the B2B space, it historically required a full-fledged lending department to run a pay later program in-house. Business owners who didn’t have excessive resources or the time to invest in it, defaulted to delegating B2B finance to banks.
Creating custom solutions to automate unique B2B BNPL projects was never a problem, as long as you had bottomless pockets. But the goal was to create a multipurpose, easy-to-implement and use pay later solution for B2B cases capable of handling a variety of business types and credit products.
Today, B2B BNPL automation is readily available and requires no previous lending expertise to run as part of your business.
Types of b2b pay later finance
In our experience, industries that opt for B2B BNPL most commonly work in these areas:
- Industrial and mechanical equipment
- Commercial electronics
- Sporting goods
- Automotive & parts
- Construction machinery
- Wholesalers & resellers
- Vehicles finance
For most TurnKey Lender clients that come to us looking to offer B2B BNPL, it is quite simply a new iteration of trade finance or invoice factoring where the buyer needs to pay the full amount in 10-30 days. And BNPL we know from B2C looks like a simplified version of that arrangement. For example, you pay 25% down and owe the rest over three months or longer.
The B2B buyers are already familiar with pay later and expect to have payment options at the checkout. So providing them with this option, not only exceeds their expectations but helps you build better longer-lasting relationships. A commercial pay later option helps the buyers improve their cash flow and they are far more likely to keep coming back to you beyond the first sale.
A good example of a company that offers B2B credit in-house would be one of TurnKey Lender’s clients, a large manufacturer of complex medical equipment that works with hospitals, clinics, and institutions all over the world.
As a business, they must make quick and correct decisions about the terms and conditions, approval or rejection of the pay later requests, collections and schedule management. Doing all background and firmographics research manually for such a company would be unscalable and would cost a fortune. With a custom configuration of TurnKey Lender’s AI-powered platform to automate all steps of the B2B pay later process, this company’s in-house program now runs smoothly on autopilot.
The forms B2B buy now pay later may take
B2B embedded credit may take other forms which aren’t common for B2C. Some of the models to amend pay later with include:
- Commercial BNPL credit – closer to traditional B2C pay later, this approach lets a buyer repay the seller in up to 12 installments. Usually, a down payment is required
- Merchant cash advances – a form of business factoring, MCA is a lump sum that’s exchanged for a fixed percentage of the borrower’s future sales receipts, with daily payments made over periods, typically, of less than two years
- Invoice factoring – invoice factoring, accounts receivable factoring, and accounts receivable financing. This form of lending means that you, as a credit provider, will take care of the sales ledger of the merchant and will be fully responsible for getting customers to pay the amounts stated in their invoices
- Lease-to-own – a business uses equipment and pays off a lease similar to car dealerships.
- Partnership with a lender – some of course choose to go to a third-party lender to finance their B2B sales and own the process. But this approach gives all the control over the decision process, approvals, and customer relations on another business which negates most of the benefits of BNPL for the business owner
The logic behind offering B2B BNPL in-house
There’s plenty of reasons why BNPL is a must-have option when dealing with large deals. Businesses who consider implementing pay later options often do so because:
- Buyers are looking for a low or no-interest short-term financing option and they are going to get it somewhere. This is where you can offer better terms than any bank, but still make some additional money on interest and fees
- Everyone needs better cash flow. And even if you can pay the whole amount at once, a business owner prefers to keep as many resources for their needs as possible
- A buyer wants to just deal with your business instead of going to a bank or an alternative lender for a parallel application and review process
And don’t forget the current reality we’re in – the buyer’s purchasing power decreased, businesses may have been forced to increase prices because of inflation and operational costs, and their own competition increased with global providers and expanding monopolies.
Giving commercial clients an affordable and accessible installment plan addresses these problems. A B2B pay later option lets you charge a fair price for your product while addressing your own and your client’s cash flow challenges. According to data from Klarna, one of the biggest BNPL credit providers, implementing a pay later program in B2C space leads to:
- 41% increase in average order value
- 35% increase in conversion
- 45% higher purchase frequency than the average shopper.
These percentages translate into a different magnitude of return on investment for B2B space.
Challenges of B2B buy now pay later automation and solving them
To achieve similar or better results, B2B pay later providers must solve a few challenges. Either themselves or by means of intelligent automation.
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Commercial credit scoring and decision-making in B2B buy now pay later
This is the big one. Credit decisions for business loans are a lot more challenging because business data is a lot harder to interpret and analyze consistently which makes automation much more complex. Which means that the key to the B2B BNPL is in evaluating credit risk accurately, automatically, quickly, reliably, and at scale.
Unlike consumers, businesses do not have a widely accepted credit score. This makes information processing a much more demanding process since there are so many individuals and components within businesses. In other words, there’s just too much data to consider.
But the data isn’t the problem. Combining modern lending technology and your knowledge of your industry and your clients, you can use this data in AI-driven credit scoring and decisioning. The data that takes a bank weeks to analyze, is instantly collected, sorted and understood by a B2B lending platform that uses machine learning, deep neural networks, and big data to make the decisions for you.
At TurnKey Lender we have solved this challenge and offer preconfigured and custom scoring models, as well as personalized decisioning flows which allow you to keep your staff informed and assist automated credit decisions. No matter the complexity of the industry and data.
For 90% of the cases, the Decision Engine scoring is ready to tackle your underwriting and decisioning out of the box. For the remaining 10%, the team will analyze your customer base with you and help you configure the scoring model and decision rules to automate your particular case.
Decisions on the pay later requests are made automatically, and the client gets the result instantly. It is achieved with proprietary AI in the underwriting and scoring modules. The platform’s self-learning machine learning algorithms and deep neural networks process and analyze data from bank statements, finance applications, and other relevant sources to give you ever better intel.
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Automation of unique processes
Many businesses have already dipped their toes into the BNPL waters and tried to make do with Excel, paper, and the ultimate power – their staff’s mind. Others are running outdated trade credit programs which indicate market ripeness for BNPL. They saw demand for pay later plans but these approaches don’t scale and a using a loan origination system intimidates them with assumed complexity.
But we’re here to alleviate your worries. B2B credit has long been a cracked nut for lending software providers. The challenge was making a platform user-friendly and intuitive enough to automate business-to-business BNPL in a way that would allow for sufficient configuration flexibility.
TurnKey Lender platform lets you start from scratch or migrate your existing pay later infrastructure into the company’s end-to-end automation platform, a powerful, slick, modern bank-grade system that is adjusted to your particular clientele and business logic.
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Lack of lending expertise
When considering BNPL, B2B businesses are reluctant because they think offering digital credit is a whole separate business they’d need to focus on and dedicate heavy resources to manage. Historically, this was true. Only a bank could afford to do all the underwriting, coordinating, loan servicing, collection and reporting.
But today, an end-to-end automation platform tailored to your business case, like TurnKey Lender, does all of that automatically, on your terms. You are in control of every aspect of the process but don’t have to babysit it. It’s a modern SaaS that you set up, teach the staff to do a few things, and it works as a native part of your process.
With TurnKey Lender’s flexible credit scoring and robust automation, a business can own and run their own pay later program with minimal overhead (or even existing staff) and without too much of a lending expertise, because all the heavy lifting is done by the platform.
Final thoughts
A situation where a market worth almost $100trl needs a software solution to get rid of a middleman is a white whale in the world of FinTech. B2B BNPL is the next big thing in credit. And it is huge.
It’s a tectonic shift of finance from traditional lenders to the point of sale. And now the technology, the businessesand, most importantly, the buyers are ready, if not asking, for it.
The question isn’t if pay later options are in demand in B2B space. It’s not if the technology is ready to handle the B2B business logic without making the implementation economically impractical. It’s whether you are ready to become the provider of affordable and intuitive BNPL options for your B2B clients.