Nicola Smith 29 October - 7 min read
In recent years, business to consumer (B2C) buy-now, pay-later providers have skyrocketed in popularity as more payment options come to market. Built around a model that transfers the credit risk to the provider, it allows consumers to buy what they need without sacrificing their cash flow. The downside, however, is the fees that buy-now, pay-later companies charge which can ultimately be reflected in higher prices.
While B2C postpay options provide flexibility to consumers, there’s a lack of postpay options for B2B transactions. If the buy-now, pay-later architecture facilitates the ability for businesses to enter into payment plans with their customers, why can’t companies have this same flexibility with their business customers? In this article, we take a look at postpay options for B2B transactions and the different ways you can introduce a range of payment options in your business.
When businesses send invoices for B2B transactions, the financial risk remains with the company until the invoice is paid. If one invoice is late, it’s problematic, but SMEs often have several invoices outstanding or overdue at any one time. Recent research by SME funder, Scottish Pacific in its April 2020 SME Growth Index found that SMEs have around 29 per cent of their revenue tied up in outstanding invoices, and 16 per cent of this revenue was in overdue invoices. In this research, late payments were defined as payments outstanding for over 90 days, and SMEs are considered to have an annual turnover of between $1 million and $20 million.
One of the most common impacts of late payments is the cash flow issues that arise as a result. According to research by Moula, 63 per cent of SMEs surveyed experience cash flow problems due to late payments. Beyond the stress and financial instability associated with late payments, it also holds businesses back from spending. With better cash flow, many SMEs would spend more on their businesses through:
With the introduction of buy-now, pay-later functionality, and other credit options, your business and its customers will have the flexibility to structure your transactions in a range of ways that work for both parties. Alternatively, you can use invoice financing to bolster your cash flow. Breaking payments into smaller amounts allows your business to improve its cash flow while reducing the financial risk of sending large invoices to be paid in full under your usual payment terms.
Business owners can add postpay options to their businesses through the use of invoice financing and buy-now, pay-later finance. In either scenario, an intermediary such as a financing platform would pay the seller’s invoice immediately and take on the financial risk. For the buyer, depending on the size of the transaction, there would be a range of payment options, including smaller payments over time and interest-free periods. With these arrangements in place, the seller can access the goods and services they need, effectively manage their cash flow and reduce the financial, legal and reputational risk associated with having outstanding creditors.
B2B merchants benefit from postpay options as the financier pays the business immediately. This reduces the risk associated with the customer not paying its invoices on time while providing a cash flow boost for the company. With this cash flow boost, SMEs have access to the finance they need to invest in their businesses without the roadblocks associated with traditional finance channels. Further, the seller also doesn’t need to create invoices, follow up overdue invoices or administer their regular payment terms which provides business administration efficiencies.
To be eligible to use a B2B buy now, pay later option, a business needs to go through the normal assessment process to ensure the debtor isn’t a credit risk. Not only does this ensure the integrity of the payment platform, but it also provides peace of mind to business owners in knowing that their customers are in a sound financial position.
Adding postpay options to your business is as simple as importing your invoices from your existing accounting or ERP system. From here, you can add a variety of payment options. Similar to when a retail consumer can click to pay by credit card or a buy-now, pay-later provider, your business customers will now be able to view an option that allows them to pay for products and services via instalments and other financing options.
More ways to pay with Spenda
Our mission at Spenda is to give business owners the tools they need to be more strategic about managing the data across their business from payment options to stocktake and warehousing. Not only does this improve payment times and cash flow, but it provides the functionality you need to engage with different business customers and suppliers in one intuitive platform.
Contact us to learn more about how you can integrate the right tools and processes in your business to enable workflow payments.
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