Businesses want to get paid. But who wants to pay!
What is deferred payment in B2B?
Deferred payment for B2B (business-to-business) companies refers to temporarily postponing, in full or in part, the payment a seller makes to a merchant or marketplace through a deferred payment agreement. In B2B, the deferred payment agreement is often in the form of net payment terms, e.g. payment 30 or 60 days after invoice.
A B2B Buy Now, Pay Later (BNPL) service pays the seller upfront and agrees to be repaid by the later. Let’s look at four frequently asked questions around BNPL and deferred payments:
- How is BNPL for B2B different from BNPL for B2C?
- How do BNPL’s deferred payment agreements enable businesses to manage their cash flow?
- How do BNPL’s deferred payments reduce risk for B2B businesses?
- How does BNPL for B2B support marketplaces?
How is BNPL for B2B different from BNPL for B2C?
In recent years, consumers have become accustomed to BNPL deferred payment options at checkout. A person may choose to pay with Klarna, for example, instead of their credit card.
But, deferred payment agreements have long been part of B2B trade – so why the interest in BNPL now?
The global B2B market is much bigger than B2C. Statista shows B2B global ecommerce in 2021 was 17.1 trillion USD; more than five times bigger than B2C. Huge opportunities await digital players – offering deferred payment agreements to buyers at checkout in a B2B e-shop puts payment terms at their fingertips. Additionally, good BNPL services enable non-digital players to offer deferred payment agreements.
B2B BNPL transactions differ from B2C BNPL transactions in scale, purpose, and additional features businesses receive from their BNPL partner.
Scale
B2B transactions and payments are generally larger than that of B2C. Deferred payments via B2B BNPL may involve larger amounts of money and longer payment terms.
Purpose
A person may see BNPL as a convenient way to pay for a new mobile phone without paying right away, often without interest fees. However, B2B BNPL is a short-term trade finance tool for businesses to manage cash flow and maintain liquidity. It also helps businesses to manage seasonality or demand fluctuations by providing deferred payment agreements to match the timing of their revenues. For example, agriculture comes to mind.
Examples of additional benefits
In addition to deferred payment agreements, B2B BNPL providers often offer additional features and services tailored to the needs of businesses. Examples include: invoice management, credit checks, account management tools, and collecting late payments.
How do BNPL’s deferred payment agreements enable businesses to manage their cash flow?
B2B BNPL’s deferred payments help businesses to better manage their cash flow by providing them with flexible payment options, preserving their working capital, and helping them manage seasonality and forecast their expenses. Both buyers and sellers can avoid taking out bank loans to find funds or tapping their own treasury at inopportune moments.
Flexible payment terms
B2B BNPL providers may allows sellers to offer flexible payment terms. Sometimes in full as net terms and other times as instalment payments. Buyers better manage their cash flow because they have more time to pay bills and fees while freeing up current cash for other expenses.
Improve working capital
By using BNPL, businesses can preserve their working capital and deploy their money more wisely. Examples include payment for expenses such as inventory, payroll, or marketing. Improving working capital helps businesses avoid cash crunches or financial stress. For the seller, it’s sell now, get paid now. Meanwhile, the BNPL service gets repaid according to the net terms.
Manage seasonality
Many businesses and industries experience seasonal revenue fluctuations. High demand at certain times of the year is challenged by lower demand at others. B2B BNPL helps businesses manage this seasonality by providing them with flexible payment options that match the timing of their revenues. The result is avoiding cash flow problems or needing to take out bank loans during slow periods.
Predictable payments
Businesses forecast their cash flow more accurately with deferred payment agreements. Buyers know exactly when and how much they need to pay. The deferred payment agreement will include clarity around fees, interest rates/interest charges, and when to pay.
Digitalisation
Modern BNPL products are digital payment solutions helping interested businesses to implement digitalisation strategies. Paperwork reduction is a great benefit! BNPL provides non-financial businesses with a form of embedded finance that makes checkout procedures simple. Ideal B2B BNPL solutions aren’t just about payment. They include support for developers, easy-to-integrate APIs, and customer-focused back office platform and user portals.
How do BNPL’s deferred payment agreements reduce risk for B2B businesses?
B2B BNPL reduces risk for merchants and marketplaces. Examples include improving credit risk management, providing payment security features, helping businesses manage their cash flow, ensuring the seller gets paid, and improving their budgeting and expense planning capabilities.
Credit risk management
B2B BNPL providers often perform credit checks and risk assessments on potential buyers before offering a deferred payment agreement. This prevents extending credit to customers unlikely to pay or who have a high risk of defaulting.
Payment security
Payment security features, such as fraud detection and prevention, help to reduce the risk of payment disputes or chargebacks. This protects businesses from losses due to fraudulent or disputed transactions.
Improved cash flow
We talked about this above, but it’s always worth talking about cash flow! With B2B BNPL businesses maintain a healthier cash flow by providing the customers with flexible payment terms. How? The BNPL company actually provides the money by paying the seller and extending credit to the buyer. The BNPL provider takes on the bulk of the risk and gets repaid later (with interest!). Merchants or marketplaces don’t use their own working capital nor make loans; but, they receive timely payment.
Better Budgeting
Businesses forecast their payments more accurately, allowing them to budget and plan their expenses more effectively. This reduces the risk of overspending or unexpected expenses. Sellers accept clear fees and/or interest charges from the BNPL provider, but they may choose to absorb those or pass them on to the buyer. Interest rate and fees depend on the BNPL service and a company’s creditworthiness. No more waiting a long time for bank loans.
How does BNPL for B2B support marketplaces?
Marketplaces should be interested. Why? BNPL’s deferred payments enable marketplaces to increase sales, improve cash flow, improve conversion rates, and gain a competitive advantage. Businesses using the marketplaces should see growth and sales increase, improved customer base stability, and even find new customers more easily. Let’s look at examples:
Deferred payments = increased sales
By offering BNPL, marketplaces make it easier for buyers to purchase products or services. How? They can spread the cost of their purchases over time or select the most beneficial payment terms possible. BNPL solutions should be able to make almost instantaneous decisions on acceptable payment terms or instalments, speeding up the traditionally laborious and slow process. The result: increasing sales by reducing upfront costs of purchases and creating affordability for buyers.
Deferred payments = better conversion rates
You’ve got the customer ready to pay at checkout, but then they change their mind because payment options are not attractive. Buyers may abandon their carts if they find the upfront payment too high. They don’t pay! Not so when deferred payment agreements are available. BNPL helps conversion rates on marketplaces to improve by reducing cart abandonment rates. Conversion rates go up because purchasing becomes faster, smoother, and easier.
Deferred payments = competitive advantage
B2B marketplaces offering BNPL differentiate themselves by offering an additional value proposition. Deferred payment agreement opportunities build trust and attract more buyers and sellers to the marketplace and increase overall value.
Interested in a B2B BNPL offering deferred payments for your business needs? We can help!
Examples of what Terms.Tech provides include: easy-to-integrate B2B deferred payment terms at checkout, near-instant decision making, and responsibility for payment collections.
- Interested in integrating 1-click payment terms at checkout?
- A custom solution for complex B2B platforms?
- Are you a B2B merchant looking to sell more?
- Or, a B2B marketplace looking to decrease cart abandonment?
Terms.Tech’s deferred payment solutions easily adapt to any businesses need or industry, are faster than bank loans, have fair and transparent interest and fees, and allow businesses to conserve their funds. Bank loans become the past! Our user experience matches that of B2C BNPL.
🤝 Why wait to find out more? Get in touch with our deferred payments experts now.
