There may be nothing new under the sun, but buy now, pay later (BNPL) as a trade financing solution for business-to-business (B2B) buyers and sellers is a meaningful adaptation of the concept.
How companies use installment credit diverges from consumer uses, as would be expected, and with BNPL for B2B growing, businesses are starting to learn the nuances of using it to its potential.
As TreviPay CEO Brandon Spear told it, BNPL’s rise in the consumer space is partly driven by aversion to credit cards with high annual percentage rates, with BNPL giving consumers more buying power on manageable terms. Businesses are already familiar with this idea.
“I often joke with a lot of people that the original version of buy now, pay later was trade credit,” Spear told PYMNTS. “It’s got a new and interesting name, but it’s really something that’s been around for a long time. The single biggest difference between the consumer world and the business world is you always have more stakeholders in a purchasing decision.”
Tactical use of BNPL for B2B purchases can make some of those decisions less fraught, he said, by fulfilling the needs of stakeholders throughout the organization — whether it’s the procurement team, the people who own the budget, the end users of the products or services, or the accounts team responsible for paying the bills.
The same flexibility and manageability that makes BNPL attractive to consumers are what makes it appealing to companies, too.
“With the buy now, pay later concept, you don’t have to pay full invoice value,” Spear said. “If you think about trade credit, when an invoice is due on day 30 or day 45, you have to pay the whole invoice. You can’t say, ‘I’m going to pay you 25% of the invoice.’”
See also: Businesses Want Trade Credit to Be as Fast, Easy and Available as Buy Now Pay Later
Caution Meets Regulation
On the consumer side, regulators have been paying close attention to BNPL lately, with the Consumer Financial Protection Bureau (CFPB) asking five major BNPL providers to address fears of unhealthy debt and potential data abuse.
Again, it’s not all that different in B2B. The same data-based credit decisioning applies, although B2B tends to be a bit more cautious, given that credit lines tend to be a lot larger. While it’s conceivable that a company could get in over its head with B2B installments, corporates are likely to pull the plug before that happens.
Spear said the common “bill-and-chase model” of B2B invoicing “ends up being self-regulating, because if somebody is not capable of repaying the bill and not servicing the [debt], then you cut them off. You basically stop the credit lines. Those differences, those nuances are really quite key in terms of how this plays out and how this works in the two different worlds.”
At present, the biggest wrinkle is around proving businesses are eligible for BNPL terms.
“What I would emphasize here and call out here is one of the challenges in the B2B space is [that] there isn’t necessarily as easily accessible a metric on creditworthiness,” he said. “That’s not necessarily true in the B2B world because there’s so many variations on a theme of different types of companies, and there’s not always as good data as there is in the consumer world.”
See also: Resolve Raises $25M Amid Demand for B2B BNPL
Risk, Reward and the Future
Higher incidences of business identity theft are complicating this picture, he said.
With risk assessment getting more attention from installment credit FinTechs, Spear said, “There’s a bit of an arms race that’s … going on between the bad actors, the merchants and sellers who are trying to figure out how to provide good customers, good actors with lines of credit.”
Observing that consumers applying for BNPL credit supply basic information to qualify, he added that, “In the business world, there’s a lot less of that, but it’s not to say that there isn’t any.”
“It is really important as a service provider or if you’re a merchant doing this to be a really good custodian of data and make sure that you protect it, that if you store it, you encrypt it,” Spear continued.
As TreviPay is an American company with clients in Europe and elsewhere, strict European Union data laws — namely General Data Protection Regulation (GDPR) — make data security a priority for B2B lenders.
“You’ve got to be very cognizant of things like that if you’re a U.S. seller who might have customers in other jurisdictions,” Spear said. “What does it mean for that customer data moving backwards and forwards on the internet?”
With B2B use of BNPL being relatively new, unknowns remain, but these solutions have a use in financing B2B transactions and will continue to build momentum through 2022.
“What I think is likely to occur is that the various options and choices you have when you offer trade credit to your customer, that all gets covered with a broad buy now, pay later brush because you have so many different levers to pull,” Spear said.
See also: Mastercard Launches Commercial Card Solution for Small Business Financing in APAC
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