In the world of B2B payments and trade finance, flexibility is key. Businesses strive to optimise their cash flow and strengthen their relationships with customers. In this context, flexible payment terms emerge as a powerful strategy to drive sales growth.
Why do flexible payment terms serve as a win-win solution? They provide buyers with the much needed relief to manage their cash flow. Flexible payment terms offer sellers a competitive edge – a pain point solution for their customers. I.e. let’s delight current customers and attract new ones!
We will explore:
- the reasons why flexible payment terms are crucial in B2B transactions
- how they can contribute to increasing sales, and
- the types and benefits of flexible payment terms.
This article will help to explain why embracing flexible payment terms is a game-changer in the B2B landscape.
Benefits of flexible payment terms for B2B purchases
There are three main benefits of flexible payment terms for B2B purchases. How do flexible payment terms help?
- To improve cash flow and optimise working capital for both buyers and sellers
- Sellers to increase sales
- To reduce the risk of non-payment
Flexible payment terms help to improve cash flow and optimise working capital for both buyers and sellers
Flexible payment terms provide improved cash flow management for buyers. Businesses can better align their cash outflows with their revenue generation cycles with extended payment terms. The result is greater flexibility in managing their working capital. This is particularly valuable for businesses with seasonal fluctuations or irregular cash inflows.
Enabling buyers to allocate their financial resources strategically is a key benefit of using flexible payment terms. Ideally, this frees up funds for other critical business needs. These may include e.g. inventory management, marketing initiatives, or expanding their operations.
Flexible payment terms play a crucial role in increasing sales
Extended payment terms or instalment payments can reduce the upfront financial burden on buyers. It’s easier for them to make larger purchases. This, in turn, expands the potential customer base and opens doors to new sales opportunities. Accommodating the cash flow constraints of buyers lets sellers enhance their competitiveness.
Furthermore, by mitigating the financial barriers to entry, flexible payment terms build trust and foster stronger, more loyal long-term relationships with customers. Customer Lifetime Value (CLV or CLTV) is a key ingredient to successful B2B operations, some would argue the most important metric!
Flexible payment terms help to mitigate the risk of non-payment for sellers
Conducting thorough credit checks and setting appropriate credit limits cannot be underestimated. These processes allow sellers to minimise the chances of dealing with financially unstable buyers. By offering revolving credit lines, sellers can establish a consistent revenue stream. At the same time they reduce the risk of non-payment. Adding this level of security enables sellers some peace of mind. They can focus on core business activities instead of constantly worrying about late payments or defaults.
Additionally, flexible payment terms foster a sense of financial security. This context creates a conducive environment for business transactions. Also, it further bolsters the overall stability of the B2B ecosystem. Even better if a payments terms partner takes on the responsibility of the checks and late payments – more on that later.
Types of flexible payment terms
We mentioned a few types of flexible payments terms above:
- Extended payment terms
- Instalment payments
- Revolving credit lines
Now, let’s explore each in a bit more detail, including a description of what they are and some of the benefits of each.
What are extended payment terms?
Extended payment terms allow buyers to extend the period within which they must settle their invoices. Instead of only the standard 30-day term, businesses may offer 45, 60, and 90 days. Or, even 120 days or bespoke periods.
What are the benefits of extended payment terms?
Extended payment terms provide buyers with additional time to generate revenue from their purchases and subsequent sales before making the payment. The result? Buyers have greater flexibility in managing their cash flow. And, they can allocate funds to other business priorities. With extended payment terms, sellers can attract more customers and boost sales. How? Accommodating buyers who may require longer payment cycles due to their specific financial circumstances or budgetary constraints opens the doors to new customer acquisition, or enhancing customer loyalty of existing ones.
What are instalment payments?
Instalment payments involve breaking down the total purchase amount into multiple smaller payments over a specified period. For example, a buyer might agree to make three equal payments over three months. Or, four equal payments over four months.
What are the benefits of instalment payments?
Instalment payments allow buyers to spread their financial obligations out over time. This makes it easier to budget and manage their cash flow. By offering instalment payments, sellers can increase their customer base because some buyers may not have the immediate funds to make a full payment upfront, or a full payment at any one particular time. Instalment payments enable these cash-strapped buyers to proceed with the purchase. Above all, the seller does not lose the deal.
What are revolving credit lines?
Revolving credit lines are a form of flexible payment term that provides buyers with a pre-approved credit limit from which they can draw funds as needed. Similar to a credit card, buyers have the flexibility to make purchases and repay the outstanding balance over time, but often with interest applied to the unpaid amount.
What are the benefits of revolving credit lines?
Arranging revolving credit lines offers buyers ongoing access to credit. Repeated purchases are set up without the need for renegotiating payment terms for each transaction. Revolving credit lines provide buyers with greater purchasing power and a quicker, more efficient purchasing time frame. Sellers benefit from consistent sales, improved customer retention (CLV), and potentially the opportunity to earn interest on the outstanding balances.
Buy Now, Pay Later solutions offer flexible payment options for business transactions
Buy Now, Pay Later solutions have gained popularity in the B2C space. They seem ubiquitous at checkout these days. BNPLs are now making waves in the B2B transaction space as well. These solutions provide a seamless and convenient way for businesses to offer flexible and deferred payment terms to their customers. By leveraging Buy Now, Pay Later services, businesses can effectively incorporate the three types of flexible payment terms discussed earlier (extended payment terms, instalment payments, and revolving credit lines). When buyers are able to choose from these attractive elements, a seller limits cart abandonment.
Do BNPL services offer extended payment terms?
With a Buy Now, Pay Later solution such as Terms.Tech, businesses can extend payment terms beyond the traditional net 30 days. For example, Terms.Tech can also provide net 60 or 90 days payment terms. It enables sellers to offer the most attractive payment terms to each buyer based on the results of the almost instantaneous credit check.
A BNPL service that provides extended payment terms enables businesses to enhance cash flow management for their customers. The BNPL also helps to attract buyers who need more time to settle their invoices.
Do BNPL services provide instalment payments?
Some BNPL solutions facilitate instalment payments. The buyer can break down the total purchase amount into smaller, more manageable payments. For example, Terms. Tech allows spreading payment over 3 or 4 instalments. Businesses can leverage this feature to offer buyers the flexibility of spreading their financial obligations over a defined period. Consequently, this provides affordability and reduces the barrier to entry for larger purchases.
Do BNPL services provide revolving credit lines?
Some Buy Now, Pay Later platforms can be utilised to establish revolving credit lines for B2B transactions. These solutions enable businesses to grant buyers access to pre-approved credit limits. This also allows them to make multiple purchases over time without the need for individual negotiations on payment terms.
Similarly, Terms.Tech features recurring payments. This is great for businesses who know they need to make regular purchases. This streamlines the purchasing process and, more importantly, encourages repeat business.
Do BNPL services take on the responsibility of decision-making and chasing late payments?
Earlier we promised we’d talk about the two responsibilities of making payment terms decisions and taking on late payments. The good news is that Terms.Tech does both!
Decision-making
Our automated decision-making grants up to €70k. Meanwhile, our manual process can grant up to €200k for larger purchases. What size of business can use Terms.Tech’s services? Small, medium and large enterprises can all become users, as well as sole traders.
Collecting late payments
What about late payments? Yes! Terms.Tech takes on the responsibility to collect payments, whether on time or late. The seller receives the payment from Terms.Tech upon proof of shipment, so after that it’s in Terms.Tech’s hands. This means that Terms.Tech helps the seller to free up precious time and energy to focus on their core business and making more deals.
Get in touch with Terms.Tech
Terms.Tech provides buy now, pay later solutions for B2B transactions. This BNPL service empowers businesses to offer versatile and customisable payment options. And, this allows businesses to cater to the unique needs of their customers. Moreover, no matter which industry you’re in, it expands customer base and drives sales growth, and improves CLV. Terms.Tech also enhances customer satisfaction and loyalty by simplifying the payment experience. Simply put, Terms.Tech provides the desired flexibility in managing cash flow.
🤝 Why wait to find out more? Get in touch with our Terms.Tech consultants and see what the best BNPL solution is for you.
