Corinne Riley and Sarah Guo | BNPL for Businesses | Summary and Q&A

TL;DR

B2B payments and financing are undergoing a transformation, with the rise of BNPL (Buy Now Pay Later) options creating new opportunities for innovation and improved customer experiences in business transactions.

Key Insights

• 🎏 B2B financing is lagging behind consumer market innovations, but the adoption of online transactions, digital finance operations, and digital payments in B2B is inevitable.
• 💐 B2B BNPL companies are emerging as intermediaries that alleviate the cash flow burden and risk for suppliers, offering instant net terms and streamlining the financing process.
• 🤩 Decreasing administrative costs, improving credit decisioning, simplifying the checkout process, and managing collections are the key benefits of B2B BNPL.
• 👶 The success of B2B BNPL companies depends on factors like speed, administrative burden reduction, flexibility in economics, and increasing financing access to new markets.
• 🚦 Vertical specialization and distribution strategies can further enhance the impact of B2B BNPL companies in specific industries.
• 🇭🇰 B2B BNPL companies have significant opportunities for innovation in areas like checkout experiences, AP and AR automation, and moving transactions to marketplaces.

Transcript

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Questions & Answers

Q: What are the challenges of traditional B2B financing?

Traditional B2B financing involves a cumbersome paper-intensive process, high friction associated with checks and ACH payments, unstructured communication channels, and manual reconciliation, making it laborious and inefficient for businesses.

Q: How does BNPL for B2B differ from its success in consumer markets?

BNPL in consumer markets has been successful in improving customer experiences and driving conversion rates, but in B2B, the challenge lies in offering instant digitized financing and managing the risk assessment process effectively.

Q: What are the benefits of B2B BNPL companies?

B2B BNPL companies reduce administrative costs for companies by outsourcing the net terms process, absorb default risk by paying the full cash payment upfront, improve credit decisioning, and streamline the checkout and collections process.

Q: How can B2B BNPL companies increase top-line growth for suppliers?

B2B BNPL companies can increase speed in the financing process, decrease administrative burden through automation, offer better rates and longer terms, and broaden financing access to new markets and smaller buyers.

Summary

In this episode of the Gray Matter podcast, Corinne Riley and Sarah Gua discuss the potential of Buy Now Pay Later (BNPL) financing in the B2B commerce world. They highlight the current flaws in B2B payments and financing and explore the opportunities for innovation in this space. They also discuss the benefits of B2B BNPL companies, such as decreasing administrative costs, improving credit decisioning, simplifying checkout processes, and managing collections. The episode concludes by addressing the potential impact of B2B BNPL on increasing average order volume, expanding financing access, and overcoming distribution challenges.

Questions & Answers

Q: What is the current state of B2B payments and financing?

The current state of B2B payments and financing is characterized by cumbersome paper-intensive processes, high friction associated with checks and ACH, unstructured communication channels, and manual reconciliation. It is laborious and inefficient, leading businesses to seek modern tools and solutions.

Q: How is BNPL financing perceived by consumers?

Consumers no longer view digital payments as one option among others but as the expected default. This expectation has carried over to BNPL financing, which has become commonplace over the last five years. Consumers now expect seamless digital financing, order tracking, and mobile-friendly interactions. This shift in perception has not been matched in the B2B commerce world.

Q: What are the challenges in offering instant digitized financing in B2B?

Offering instant digitized financing in B2B is challenging from a product distribution and risk assessment perspective. Unlike in consumer markets, the underpinnings of BNPL success need to be rethought in the B2B space. There is a need to find ways to lower customer barriers to purchasing, overcome distribution challenges, and effectively assess the risk associated with offering credit to B2B customers.

Q: What is the current process for B2B financing using net terms?

The current process for B2B financing using net terms involves a supplier offering credit to a customer after a credit rating process and trade references. The supplier essentially offers a short-term loan to the customer, taking on the risk of default or late payment. In some cases, suppliers turn to invoice financing or factoring, where they sell the invoice to a third-party factor in exchange for upfront cash at a discount.

Q: What are the limitations of the current net terms process?

The current net terms process places a cash flow burden on suppliers. They take on the risk of non-payment and incur additional administrative costs for managing complex accounting. Many markets and companies are unable to use factors due to their smaller transaction sizes, restricting access to financing. The process also creates a bad experience for customers who have to provide unstructured information, offer trade references, and wait for credit approval.

Q: How are B2B BNPL companies improving the net terms process?

B2B BNPL companies act as intermediaries between the payer and payee, absorbing much of the cash flow burden and risk away from the suppliers. They offer quasi-instant net terms to end customers, manage all credit decisioning, bear default risk, and handle collections. Suppliers receive 100% of the invoice upfront, minus a fee, and are not responsible for collecting payment. This simplifies and speeds up the net terms process, making it easier and faster for customers.

Q: What are the benefits of B2B BNPL companies?

B2B BNPL companies offer several benefits. They decrease administrative costs for suppliers by outsourcing the net terms process. They absorb default risk, improving credit decisioning processes. They also have the potential to improve checkout experiences and manage collections, reducing the burden on suppliers. Additionally, they can increase average order volume by providing a better customer experience and offer financing access to businesses that were previously excluded.

Q: How can B2B BNPL companies impact top-line growth for suppliers?

B2B BNPL companies can impact top-line growth for suppliers through speed, administrative burden reduction, flexibility in economics, and broadening financing access. A rapid financing process can increase buyer application and take-up rates. Programmatically settling collections with automation and better data can reduce administrative burden. Offering better rates, longer terms, and new payment methods can improve the flexibility and economics of financing. Finally, offering financing in markets where net terms are not common can open up new opportunities for growth.

Q: What are the potential verticals for B2B BNPL specialization?

Startups attacking B2B financing can specialize by vertical or a set of similar verticals to build more specific features and become more intelligent in risk assessment. Potential vertical specializations include e-commerce merchants, food marketplaces, construction, and health equipment. By focusing on these specific industries, B2B BNPL companies can provide tailored solutions and address the unique financing needs of each vertical.

Q: What areas are fertile for innovation related to B2B financing?

There are several areas fertile for innovation related to B2B financing, including improving the checkout experience, automating accounts payable and accounts receivable processes, moving transactions to marketplaces, and integrating BNPL solutions into offline sales. Startups that have a point of view on distribution, build sticky workflows around accounts receivable management, and innovate in underwriting will play a significant role in shaping the future of B2B BNPL.

Takeaways

The adoption of online transactions, digital finance operations, and digital payments in B2B is inevitable. B2B BNPL has the potential to transform the B2B financing ecosystem, providing better access to financing and streamlining processes. It can decrease administrative costs for suppliers, improve credit decisioning, simplify checkout experiences, manage collections, and increase average order volume. B2B BNPL companies can also broaden financing access, open new markets, and specialize in specific verticals. The future of B2B financing is promising, and there are ample opportunities for innovation and growth in this space.

Summary & Key Takeaways

• Consumers have come to expect seamless digital financing options, order tracking, and mobile-friendly interactions, but the same level of innovation has been lacking in B2B commerce.

• The current state of B2B net terms is flawed, as it simply shifts the cash flow burden to suppliers and involves a cumbersome and expensive payment process.

• B2B BNPL companies are emerging as intermediaries that absorb the cash flow burden and risk, providing instant net terms to end customers and improving the overall B2B financing process.