Why BNPL in B2B is different from B2C

In the B2C space, Buy Now, Pay Later is one of the most popular payment options. As consumers, we’re used to choosing freely which payment method we want to use. What does it look like in the B2B space? 

Business customers have preferred paying by invoice for decades since this is a very common way of optimizing working capital for your company. But the fact is that sometimes it’s not even an option for companies to order goods online via payment by invoice. In this case, business buyers face large orders they must pay upfront. We experienced it first-hand during the pandemic when we tried to order many lateral flow tests for the office and had to pay immediately. So there you are with a huge order worth thousands of Euros, and you have no idea whether the goods coming from the other side of the world are satisfactory or not. Apart from the poor buyer experience, this can also significantly restrain a company’s cash flow.

Even if you’re offered payment by invoice as a payment method, in B2B, this still most likely comes with cumbersome paperwork and long waits. For business orders, the shopping basket volume tends to be five times higher than in consumer purchases, which means significantly higher credit limits on the merchant side. To manage this risk, merchants often ask buyers to go through lengthy registration and identification processes. For lack of a digital solution, the credit limit often has to be applied for by e-mail or telephone. Including proof of identity and creditworthiness the entire underwriting process can take up to a week. Which all adds up to an extremely frustrating experience on the buyer side and a high risk of losing the business for the merchant.

Speaking of ‘proof of identity’ — what challenges are online retailers facing regarding BNPL and fraud?

Identity fraud is one of the biggest hurdles in B2B payment by invoice. Identity fraud in BNPL accounts for 80% of reported losses. The highest risk for merchants occurs when it comes to new customers or ‘shopping as a guest’. How do you ensure that the business buyer in your checkout is a legitimate company? How do you check if the person placing the order is an actual person? And whether they are both working at the company in question and eligible for placing online orders on behalf of the business? As you can see, the list of criteria you need to check to finance business customers is considerable and carries many risks, whereas confirming a consumer's identity and eligibility in B2C e-commerce is relatively straightforward. 

Studies have shown that when it comes to online shopping, business customers nowadays have the same demands they have as private consumers. What does a B2B Buy Now, Pay Later solution have to achieve to satisfy these needs and offer the same level of convenience?

There are a number of things that a BNPL solution for B2B e-commerce has to address in order to provide the same level of flexibility found in B2C BNPL. Let’s start with the payment terms. To optimize working capital, business customers need highly flexible payment terms, ranging from 14 to as many as 90 days, depending on the payment terms they themselves face as suppliers. 

Therefore the standard payment terms of 30 days that we see in B2C e-commerce don’t meet the needs of business customers. If you want to provide a truly smooth customer experience as a merchant, you need to offer individual payment terms to your business buyers. 

Then there’s the need for real-time scoring. As discussed earlier, the set-up process of Buy Now, Pay Later for business customers is often time-consuming and involves several manual steps. With the right digital solution, a business customer can be approved for their preferred payment option in milliseconds and without their active input — Whether they are a new or returning customer. 

We discussed payment terms and real-time scoring. What would you say are additional factors that merchants need to bear in mind when offering BNPL to their business customers?

To steadily grow their business, merchants need to be able to approve at least 80% of BNPL requests from their business customers. Of course, this requires that the business buyer can be identified to prevent fraud. Additionally, a proper eligibility check will need to be conducted every 60 days, which is a recurring process. The third step is to ensure that the credit limit granted is sufficient to meet the purchasing needs of B2B customers — which in practice can mean limits of up to EUR 100,000. Finally, the acceptance rate should not depend on whether the business customer is a classic company, a freelancer, an association, or a public institution, so decisions should be made regardless of their legal entity.

All of this requires a high level of technical scalability to ensure smooth functionality. The more simultaneous orders a merchant processes in their checkout, the greater the need for effective handling of large amounts of data as well as decision-making algorithms for credit checks and fraud prevention. The last thing you want is a ‘jerky’ checkout and frustrated customers. 

Last but not least: Buy or build? When should merchants go for an in-house solution and when does it make sense to use an external BNPL provider for your checkout?

As a rule of thumb, I would say that merchants can venture into an in-house solution if they have less than 100 active customers, almost all of whom are existing customers that turn over five-digit amounts each month. Also, your customers would need to have similar payment term requirements, and your insurance can reliably cover their requested credit limits, or you can without a doubt ensure their creditworthiness over a long period of time – then you should be safe with an in-house solution.

For all other cases, especially merchants that want to address a broader range of business customers, big and small, I would recommend consulting a specialist for B2B BNPL. This way, you can ensure that your business customers will get the same checkout experience that they are used to as consumers, scale your business, and increase your revenue without worrying about the risk of defaults on payments.