Flexible B2B Ecommerce Payments Are Easier than Ever. What Are You Waiting For?
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Can we be frank for a minute?
Too many B2B firms are falling behind the payment technology curve, putting their long-term growth at great risk.
According to the BigCommerce B2B Ecommerce Trends Report, most ecommerce businesses are still offering old fashioned payment methods, such as purchase orders (50%), trade credit (52%), and even paper checks (50%). And while a majority of B2B firms surveyed offer the ability to pay with credit card (95%), these are generally more suited to smaller orders and can have extremely high interest rates and fees.
Conversely, very few are offering what could be considered “modern” payment methods, including mobile wallets (25%) and third-party financing (under 10%).
Unfortunately for sellers still conducting transactions using older methods, the B2B buyer is changing, with expectations leaning towards more streamlined purchasing processes.
To be sure, B2B purchases are often complex, and not as simple as buying shampoo on Amazon. The good news is that the challenges presented by these complexities can be addressed with technology, making flexible payment options in a B2B setting easier than ever.
What is B2B Ecommerce?
B2B Ecommerce is a broad term for purchases that are conducted in part or entirely online between two business entities.
These transactions are typically, but not exclusively, enacted through an online portal–be it a website, an online marketplace, an electronic data interchange (EDI) system, or other electronic means. These purchases can be for anything from a $2 box of staples to large capital investment purchases. For example, the avionics unit of Honeywell launched an online marketplace for its industry and sold a $100,000 jet engine earlier this year.
The B2B Ecommerce industry is rapidly expanding and is projected to hit $1.8 trillion by 2023.
That’s one reason why understanding what works–and what doesn’t–in terms of B2B Ecommerce payments is so crucial to a merchant’s success.
What Are B2B Ecommerce Payments?
Before discussing the challenges facing B2B firms when it comes to ecommerce payments, it’s important to understand the various methods used.
1. Traditional trade credit.
When a firm extends credit terms to its buyers; often (but not always) managed by a third-party.
2. Purchase order.
One of the most common ways to pay in B2B, it’s the old “I send you a paper order form, you send me an invoice, then I send you a check” payment method. Obviously, this requires a significant back and forth, along with a major time lag between when orders are placed and when they’re paid for, even when these are done electronically.
3. Paper checks.
An actual, physical check that gets sent to the seller, who then has to endorse it and deposit it at a bank (though there are some mobile banking apps that allow electronic deposits).
4. Cash on delivery.
Seller places an order and pays in cash for it when the order is delivered.
5. Credit card.
The buyer charges the order, and then decides how/when they’ll pay back their financial institution, while the seller gets paid relatively fast (especially in comparison to some other methods).
6. Mobile wallets.
Buyer stores bank account or credit card information in a virtual “wallet” and then chooses the payment account when placing an order.
Bank to bank electronic transactions.
7. Instant credit.
The seller uses technology to quickly determine a buyer’s creditworthiness and authorizes a line of credit that can be used in their online store or over the phone. Buyers can choose their payment schedules and sellers typically get paid within 48 hours.
B2B vs. B2C Payments: What’s the Difference?
Whether we’re talking about multi-million dollar procurement need or just buying common office supplies, B2B purchases are often larger and more complex than their B2C counterparts.
Payment methods therefore need to be more flexible in order to accommodate them. There are a number of good reasons for this.
First, anything a business buys—raw materials, equipment, etc.—needs to meet whatever requirements are necessary for delivering the final product or service. If the jet engine your company makes requires 900 ¼” screws with a slotted head, then that’s exactly what your company needs to buy. There is little room for compromise.
This often means that price is only a part of the buyer’s consideration. Other factors that influence a buying decision (and making it more complicated) is delivery time, convenience, customer service, and support.
Second, the person making the purchase isn’t always the person using the product. In other words, the person responsible for buying the screws for that jet engine isn’t likely the person who is using them to assemble it. That person likely has a mountain of responsibilities—ordering the right materials or products, keeping within a budget, ensuring deliveries are on time, etc. Additionally, orders often have to go through an approval process before they are authorized, sometimes having to receive the signoff of several other people within the organization.
Third, conducting the actual transaction can in and of itself be complicated. Once the product in question is confirmed, and the buyer has found it at an appropriate price and gotten all the sign-offs, s/he has to find a way to pay for it. And, as mentioned above, there are a variety of methods they might choose—trade credit, credit card, paper check, etc. B2B buyers often need to weigh the pros and cons of how a transaction is completed in the context of all the other factors in their buying decision. In other words—they need to understand how the method they’re using will impact their budget and production timelines, delivery, etc.
This is often where B2B sellers make things worse.
Common B2B Ecommerce Payments Challenges
We live in a modern age, where technology like Credit Key can solve a number of challenges that prevent B2B Ecommerce businesses from scaling. Let’s take a look at why some of the more common traditional payment methods are failing buyers in the digital age, preventing B2B firms from achieving their true growth potential.
1. The high cost of traditional transactions.
To be sure the purchase order (PO) is one of the oldest, most widely accepted way to conduct a B2B transaction.
At first glance, this seems like the easiest way to complete transactions for both the seller and the buyer. The buyer finds the products they want at the price within their budget, submits a purchase order, and waits for an invoice and delivery. The seller processes the PO, assembles and ships the products in the order, and sends an invoice.
Then the seller waits to get paid. And waits. And waits. And waits. The seller might send invoices to the buyer, payment reminders, etc. The longer the buyer postpones payment, the more expensive it is for the seller. The products have been shipped, but because they haven’t been paid for, there is a large gap in the seller’s cash flow.
This could result in not being able to make their own capital investments, delayed purchases of raw materials or other products, and ultimately slower delivery times. What’s more, they need to devote human resources to following-up on outstanding invoices, and in cases where a buyer doesn’t pay, they need to send invoices to collections and pay additional fees to try to recoup their expenses.
2. Trade credit makes purchases more complicated.
With all these complicating factors that create friction throughout the B2B buying process, it’s almost shocking that so many B2B and wholesale sellers continue to force buyers into using outdated payment methods—particularly trade credit.
Think about this in the context of a single purchase. A buyer goes through all their necessary steps to source a product, get the budget approved, and then goes to place the order on the seller’s B2B ecommerce solution. They go through the entire process of putting the item in the shopping cart, create an account on the website, and then go to pay. But the amount is too high for their company credit card, making trade credit the only other payment method available.
To complete the purchase, the buyer has to download a complicated form, send it back to the merchant, and then wait a few business days to hear whether or not the terms have been approved. In the meantime, the order is in limbo.
But this type of transaction isn’t only complicated for the buyer. It’s complicated for the seller as well.
Accepting trade credit as a form of payment requires an intense amount of resources from the seller’s side. This usually includes having someone in their accounting department dedicated to managing the trade credit process—from accepting and reviewing applications, to working with a third-party financial institution, to approving applications and then later following-up on outstanding invoices.
Most B2B sellers often have very tight profit margins, and every minute they have to devote to collecting funds from a buyer eats into that margin.
And what happens in the meantime? The buyer potentially gets tired of waiting for approval, and takes their business elsewhere. So, not only has the seller spent human resources to initiate the transaction, the sale is lost, leaving the cost of initiating the transaction a total loss.
But What about Credit Cards?
Credit cards are by far the most commonly accepted form of payment online, to be sure. And while they offer a huge amount of convenience, there are a number of reasons why offering credit cards as an alternative to other traditional payment methods is less than optimal.
First, have you ever tried to buy a $50,000 piece of equipment with plastic? Even if a business has a credit card with that amount of credit available, the interest rates are probably sky high. The average interest on credit cards is over 18%, so that $50k purchase will cost a significant amount more if not paid off quickly.
There’s an additional risk for the merchant, too. What happens if the buyer initiates a chargeback, particularly after the purchase is delivered? Most likely, the merchant is out of both revenue and the product.
So, if trade credit takes too long and is too expensive for the seller, and credit cards are too expensive for the buyer and potentially risky for the seller, how can B2B merchants offer flexible payment methods without putting their own business at risk?
The Benefits of B2B Going Digital
Digital (and thereby flexible) payment methods have been around for over a decade, primarily in B2C industries. However, there are a number of benefits for B2B firms to go digital as well.
1. Responding to complexity with simplicity and convenience.
Answering challenges in the B2B purchasing process can be surprisingly simple. Implementing B2B payment technology solutions such Credit Key can dramatically reduce transaction friction, costs, and risk.
Using technology and sophisticated algorithms, flexible payment solutions can be integrated directly into the checkout process, making the entire experience faster and ultimately more enjoyable. Instead of forcing the buyer to download and complete a full-page form, such as many trade credit applications require, a handful of questions can be used to identify a buyer’s creditworthiness.
From there, the system can automatically determine how much credit the buyer has access to and the terms. Where integrations like this exist, buyers can receive credit approval in a matter of seconds—not days, as is the case in most trade credit systems. By integrating an extremely fast system to check and approve credit lines, sellers can dramatically reduce the friction inherent in a B2B purchase while also increasing the number of buyers who complete purchases.
In terms of cost, instant credit is a far more affordable payment method—for both the buyer and the seller. For the buyer, the interest rates are typically lower, especially compared to credit cards, and some (like Credit Key) provide credit for the first 30 days interest free. That means that buyers can make their purchases and pay them off for the same cost as if they had paid immediately.
For sellers, flexible payment technologies are also far more affordable because there is no need to pay for additional human resources to process credit applications, send invoices, chase buyers up for payments, etc. All those processes become automated using technology, ultimately lowering the cost of doing business.
What’s more, sellers get paid within 24-48 hours, which solves a number of problems for the seller. First, it helps ensure a continuous, positive cash flow. When a business gets paid for its products immediately, it can pack and ship them faster, all while recouping any expenses associated with selling their goods. Second, it greatly reduces the amount of risk a merchant takes on when extending credit; that risk is entirely assumed by the technology provider/lender. That means no risk of unpaid invoices, bounced checks, or credit card chargebacks.
2. Better data = higher revenues.
Think about this: Even if a B2B purchase requires complicated configurations, sign-offs, etc. in order to be completed, the payment portion itself can be far less complicated. And the easier the buying experience is, the more likely that buyer will become a repeat customer. This is especially true for buyers who receive lines of credit that are larger than their average purchase.
What’s more, sellers can get far more, higher quality data from payment technology solutions than they can with traditional trade credit or even credit cards. And they can use this to remarket products and services to existing customers.
For example, they can segment their customer base around the amount of credit each customer has access to, and develop segment-specific campaigns. For customers who have a smaller credit line available, a merchant might offer specials on lower-cost items that the buyer may need on a regular basis. For customers who use their line of credit for higher cost capital investment purchases, they can use this larger credit line to entice the buyer with complementary products and even services, such as maintenance packages or service agreements.
In other words, the line of credit doesn’t have to be used solely for purchasing products and can be leveraged to entice buyers into spending more.
What to Consider When Choosing B2B Ecommerce Payment Methods
As with anything related to ecommerce, it’s a good idea to consider all your options before implementing one in particular. What you sell, your business model and cash flow all have important impacts that should influence your thinking. Let’s take a closer look at these factors.
1. What are you selling?
Are you selling a physical product, a service, or some sort of combination of the two? This is important because most buyers are comfortable paying for products up front, since this is the accepted manner of payment in B2C transactions.
However, B2B buyers may be more hesitant to pay for services entirely up front, given that they expect an outcome from receiving those services before paying. That said, it’s common for service businesses to request a deposit before any services are performed.
Luckily, a flexible payment system can help both types of businesses (as well as hybrids) because they often allow customers to choose their payment terms (within the parameters set by the seller).
2. Can you afford to offer credit?
Managing trade credit internally is a common practice in B2B settings, however, it can require a significant financial commitment as well as higher risks.
Merchants internally managing a trade credit program need to devote resources to collecting and processing applications, sending invoices, and following up on late payments. These activities are often extremely labor intensive and can require a significant investment in human resources.
What’s more, extending trade credit can lead to stress on a business’s cash flow. Orders need to be fulfilled before payment is received, and that means the merchant has to cover all the costs related to fulfillment–purchasing raw materials or the product, picking, packing, and shipping, and dealing with any customer service issues that may arise. All these activities carry a cost, which is risky if a buyer takes credit and then doesn’t pay on time for whatever reason.
By offering a flexible payment solution like Credit Key, however, all those concerns essentially disappear. The merchant doesn’t have to devote resources to managing the trade credit process and gets paid within 48 hours. This frees up much needed cash flow, providing the merchant with more opportunities to make capital investments and grow faster.
3. What is your relationship with your buyers?
Do you have long-standing relationships or are these new customers? Merchants are often more relaxed about payments when it comes to working with buyers with whom they have a long-standing relationship. However, that flexibility likely isn’t as easy to give for new customers. And what business doesn’t want new customers? If you’re not growing, you’re dying, as the old saying goes.
This is another area where offering flexible payment solution shines. Because the solution provider assumes the risk associated with extending credit, merchants can offer flexible payment options to both existing and new customers, without having to worry about new buyers ripping them off.
Executive Summary: Flexible Payment Technologies Are the Future of Ecommerce
If you’re wondering if offering flexible payments to your customers is worth it, simply look at B2C ecommerce. This technology has been deployed in B2C settings for well over a decade, and is still one of the most popular payment methods for online purchases.
In B2B ecommerce, though, flexible payments are just taking off. And there’s little doubt they’ll go away, if they follow the trajectory of their B2C counterparts.
This means that B2B ecommerce firms that deploy flexible payments today will likely attain an advantage over those that don’t. And in today’s high-speed, highly competitive business world, firms need every advantage they can get.
By making online transactions more flexible, with less friction, lower costs, and virtually no risk, wholesalers, and distributors can create a more user-friendly customer experience. And ultimately, this will make a significant difference in how customers view you, shop from you, and perceive your brand. Flexible payment technologies are the future of ecommerce, and those who embrace the future are the ones who will succeed in the long-term.
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