Trade Credit has been standard practice in the business-to-business (B2B) space for decades, but with innovative payment solutions like B2B BNPL (Buy Now, Pay Later) gaining traction, many companies are considering how adopting new forms of payment processing can drive growth.
In this article we cover main differences between B2B BNPL and Trade Credit, including what they're used for and their pros and cons. We will also talk about whether B2B BNPL is a better choice than traditional Trade Credit and help you figure out which one might work best for your business.
B2B BNPL vs Trade Credit (& Trade Credit Insurance): an overview
Before diving deeper into the nuances of B2B BNPL and Trade Credit, let's start by understanding what they are.
B2B Buy Now, Pay Later or B2B BNPL is a payment solution that enables businesses to make purchases while deferring payment over a flexible time period. In basic terms, it enables sellers to provide an extended form of credit that allows buyers to receive goods or services first and pay for them later, while the merchant receives the cash upfront from the B2B BNPL provider. It has grown in popularity in recent years because it allows merchants to improve cash flow while providing buyers with more flexible payment terms.
B2B BNPL is embedded into the process of placing an order, such as showing as a payment option at eCommerce checkout (although it is available for offline purchases too). This makes it widely available and something buyers can choose to self-serve on.
Everything you need to know about B2B BNPL
Trade Credit, on the other hand, is a payment arrangement between two businesses in which the buyer can defer payment for goods or services received. This is typically linked to invoicing terms like net 30 or net 60 days. Unlike B2B BNPL, Trade Credit is usually provided at the discretion of the seller as part of a business relationship or agreement. It is a common practice in business, particularly among suppliers and buyers who have built a relationship of trust and cooperation over time.
Everything you need to know about Trade Credit
What is the purpose of B2B BNPL?
B2B BNPL allows buyers to spread out their payments over a set period without incurring interest or other fees. Both buyers and merchants who adopt B2B BNPL are able to better manage their working capital, invest in growth initiatives, and maintain positive supplier relationships.
For the merchant specifically, B2B BNPL is typically used to increase conversion rates, average order value and repeat purchase due to the flexible payment terms & frictionless payment experience. At Kriya, our merchants see a 68%+ increase in average order value, & 82% higher likelihood to convert.
The administration and reporting benefits of B2B BNPL are also attractive for sellers; BNPL solutions frequently include built-in analytics and reporting tools, which can provide valuable insights into a buyer's spending habits, and uptake. Businesses can use these data-driven capabilities to make better financial decisions and increase the efficiency and profitability of their commerce process.
From the buyer’s perspective, B2B BNPL is often used to enable high value purchases without putting a strain on their current cash reserves. This can be especially useful for buyers looking to invest in expensive equipment, technology upgrades, or large inventory orders. Businesses that spread payments out over time can allocate their funds more strategically and capitalise on growth opportunities that would otherwise be out of reach.
Advantages of B2B BNPL vs Trade Credit
When comparing B2B BNPL to Trade Credit, several benefits become apparent. Let's investigate a few of them:
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Leading retailers are innovating with B2B BNPL due to its numerous advantages. One significant benefit vs trade credit is the upfront access to the funds. B2B BNPL providers like Kriya, pay out to merchants as soon as orders are delivered. With trade credit agreements, buyers pay the merchant directly, so payment is only received in full at the end of the agreed-upon payment period.
In our view, B2B BNPL is a modern alternative to Trade Credit. Historically, trade credit has been effective in B2B payments, but buyers now expect a high quality payment experience; through both offline & online channels, with flexible payment terms and with a frictionless journey. B2B BNPL offers this, along with the low credit risk and upfront payment benefits for merchants.
Disadvantages of B2B BNPL vs Trade Credit
While B2B BNPL has various benefits, it is important to examine the potential drawbacks when determining whether it is the appropriate fit for your business:
- Reliability of Provider: B2B BNPL is dependent on the availability and reliability of providers. If the chosen supplier experiences any problems or disruptions in service, it may impact the smooth execution of transactions and payments for businesses. It’s therefore critically important for businesses considering BNPL providers to research the reputation of suppliers, and to select an experienced provider with a strong track record in the PayLater sector.
Kriya has processed over £27B of B2B PayLater payments over our 12 year history. Our customers know they’re in good hands with our funding partners including Barclays, Santander, Northzone & British Business Bank.
- Potential for Overextension: Although B2B BNPL provides flexibility, merchants must exercise caution to avoid overextension in offering credit to higher risk customers. It is critical to thoroughly consider the financial ramifications of the extended payment terms and ensure that the buyers can satisfy its future commitments.
Kriya handles the credit check process instantly & seamlessly, providing buyers with a frictionless experience and sellers with peace of mind that terms are being offered to the right customers.
- Transaction fees structure: B2B BNPL providers will typically charge a transaction fee for each order paid for this way. Usually this fee will include the costs of processing the order, plus credit and sometimes fraud risk. Rates can vary based on the length or term selected and risk profile of the buyer. Late payment fees may also be charged to buyers that fail to pay at the end of their payment terms. Ensure to understand the fee structure before selecting a provider.
Is B2B BNPL a better option than Trade Credit?
Whether B2B BNPL or Trade Credit is the best option for you really depends on your business demands. Both solutions have distinct advantages and cater to various scenarios, however we’ve made the case in this article that B2B BNPL provides distinct advantages for businesses looking to modernise their B2B payment options and can be a significant growth opportunity.
To summarise some of the main arguments for B2B BNPL over Trade Credit:
Growth: For businesses looking to expand their business - particularly through eCommerce channels - Buy Now, Pay Later payment options are extremely well suited. BNPL will help scale the sales process without the need for high administrative processes to agree terms and manage accounts.
Get more customers on Payment Terms: Lower acceptance rates for SME & sole traders mean merchants are leaving money on the table. With B2B BNPL, merchants can provide credit terms to more customers. This is made possible through streamlined onboarding & the enhanced buyer authentication process. On average, merchants have a 80%+ acceptace rate with Kriya.
Higher limits = Increased order value & repeat purchase: With BNPL, merchants can offer higher spending limits than risking their assets via trade credit. Merchants that offer higher limits will enable buyers to spend more and incentivise them to come back for repeat orders. With Kriya, merchants are able to offer 2x the spending limits.
Enhanced customer experience: With automatic payment authentication, instant credit decisions, a single frictionless payment flow that works across online & offline channels, BNPL clearly provides a better customer experience than the traditionally silo-ed, unorganised process of trade credit.
Although the benefits of B2B BNPL are considerable, we’ll look at the case for Trade Credit: There may be scenarios where businesses don’t want to disrupt the existing relationship with buyers. If you have a long-standing connection with a reputable buyer and both parties have a strong history of Trade Credit agreements, it may be beneficial to maintain this to continue developing deeper partnerships. Some buyers may have come to expect trade credit terms and change can be difficult to make.
If you feel that BNPL is the best option for your business despite this, we’d advise having an open dialogue with these customers on the advantages of B2B BNPL and then making the decision on whether the improved buyer experience and cash flow improvements warrant that change. Kriya can advise your business on the best way to transition existing buyers from Trade Credit agreements to adopting PayLater.
Get in touch to find out more.
Avoid leaving money on the table with Kriya’s PayLater solution
Kriya is the Enterprise PayLater solution. Having processed over £27B of B2B payments over 12 Years, we help businesses offer buyers flexible payment terms across all sales channels.
Rather than cumbersome loans, or traditional trade credit, our merchants are able to offer buyers flexible payment terms at purchase, whether at online checkout, or offline channels such as over the phone - or even in store. In addition, PayLater offers instant buyer onboarding, fully managed repayments and reconciliation service, and full upfront payment to the merchant.
