For any B2B merchant aiming to offer credit terms to businesses, understanding and implementing a robust credit decisioning process is crucial. This foundational process not only helps in assessing the creditworthiness of potential clients but also plays a significant role in managing financial risk and building long-term buyer relationships.
In this article, we'll cover the key aspects of credit decisioning, the common hurdles businesses face, and strategies to overcome them. By the end, you'll see why automated solutions like PayLater can transform your credit operations.
What is Credit Decisioning?
Credit decisioning is the process of evaluating and approving credit for buyers.
Credit decision management encompasses several critical components that ensure a thorough assessment of a buyer’s creditworthiness. At the top level, these components include data collection, analysis, and decision-making.
- Data Collection: This involves gathering pertinent information about the buyer, such as credit history, financial statements, payment patterns, and other relevant metrics.
- Analysis: Once data is collected, it requires careful analysis to interpret the buyer's ability to repay the credit. This may involve using credit scoring models, risk assessment tools, and market evaluations to determine potential risks.
- Credit Decision-Making Process: Finally, based on the analysis, credit decisioning culminates in making informed decisions about whether to extend credit, how much credit to offer, and under what terms. This structured approach helps mitigate financial risk while supporting healthy business relationships.
Efficient credit decisioning helps B2B merchants mitigate risk while seizing growth opportunities by offering the right levels of credit to the right buyers. Effective credit decisioning processes can enhance the payer experience, improve conversion rates, increase repeat orders, and ultimately drive growth for your business.
What is the Purpose of Credit Decisioning Processes?
The ultimate aims of credit decision processes are to improve risk management, ensure stable cashflow, and maintain positive buyer relationships.
By accurately assessing a buyer's creditworthiness and offering tailored credit terms to each buyer, merchants can build stronger customer relationships and increase sales while minimising financial risk.
But there's more to credit decisioning... the buyer experience.
We know that modern B2B buyers expect the same experiences they have in B2C contexts. They expect the same levels of convenience, speed, omnichannel offerings, and personalisation. But they also expect the same flexible payment options delivered in a frictionless experience.
Offering instant & seamless credit decisioning can lead to improved conversion rates but also drive increased repeat business and higher average order values.
Learn more about how Kriya can help.
Which Merchants Need to Build Credit Decisioning Processes?
Essentially, any B2B merchant that offers credit - such as offering finance to customers, flexible payment terms, loans, trade credit - should consider establishing a clear credit decisioning framework.
This typically includes;
- Manufacturers
- Wholesalers
- Ecommerce
- Marketplaces
- Service Providers (such as Marketing agencies, IT consultants)
- Trade suppliers
Key Factors in B2B Credit Decision Management
Financial Health and Creditworthiness of Buyers
Understanding the financial health of your buyers is the first step in effective credit decisioning. This involves analysing their credit history, financial statements, and payment behaviours. By evaluating these factors, you can make informed decisions about extending credit, reducing the risk of non-payment.
The Role of Technology in Streamlining Processes
Modern technology plays a significant role in streamlining credit decisioning. Automated systems can quickly analyse vast amounts of data, providing real-time insights and recommendations. This not only speeds up the credit decision-making process but also ensures accuracy and consistency.
With Kriya's PayLater solution, B2B merchants can leverage advanced automated credit decisioning tools, ensuring instant approvals and tailored credit options that enhance customer satisfaction while outsourcing risk of non-payment.
Learn more about buyer authentication.
Common Challenges in Implementing Credit Decisioning
Data Accuracy and Availability
One of the biggest challenges in credit decisioning is ensuring the accuracy and availability of data. Incomplete or outdated information can lead to poor decisions, increasing the risk of bad debt. Investing in reliable data sources and maintaining up-to-date records is crucial.
Balancing Risk and Opportunity
Finding the right balance between risk and opportunity is often difficult. While you want to extend credit to boost sales, doing so indiscriminately can lead to financial losses. Implementing a structured approach to evaluate each buyer's risk level can help you strike this balance.
Compliance with Regulations
Compliance with financial regulations complicates credit decision-making, especially regarding Anti-Money Laundering (AML), Terrorist Financing, and Sanctions. Each region has strict laws, and non-compliance can result in hefty fines and reputational damage. Adhering to standards set by the Financial Action Task Force (FATF) and the FCA Handbook is crucial, as staying informed about regulatory changes is vital to avoid serious risks and legal issues.
Automate Credit Decisioning with PayLater
Offer instant onboarding, and flexible payment terms across your online and offline sales channels with Kriya PayLater.
Streamlined payment experience: Buyers are instantly checked for creditworthiness at point of order.
Instant credit decisioning: Eligible buyers are provided a spending limit they can use immediately.
Fraud checks: Onboard and authenticate buyers using Director ID checks (via two factor biometric ID verfication).
Broad coverage: Authenticate any business you'd like to work with, be it limited companies or sole traders, in both the UK and international territories.
Outsource the risk: You get paid even if the buyer doesn’t pay, or charges back.
How Materials Market is thriving with instant credit decisioning with PayLater
“A lot of other providers are quite conservative to the point of offering limits that are very restrictive. If a customer is regularly spending £100,000 and you're offering them a £10,000 credit limit, they’re not even going to bother trading with you” adds Samuel.
Materials Market is UK's only true marketplace for building materials. They connect buyers and suppliers of building materials in a highly competitive space.
By leveraging automated credit checks and instant approval capabilities, Materials Market are now able to quickly assess buyer creditworthiness and extend appropriate credit limits, resulting in improved cash flow and customer satisfaction.
Materials Market's buyers now receive a credit limit within seconds rather than going through a lengthy process of filling out a form, sending it off for a credit safe report and waiting for the credit control department to make a decision.
The impact:
- Credit sales increase by an astounding 1,155%.
- Customers are more than twice as likely to place a second order if they have a credit account.
- Average credit order value is 3.6 times higher than average cash order value
- Average credit order reaching £3,057.
- Monthly growth for credit customers is nearly quadruple that of cash customers.
Interested in how PayLater can help you with credit decisioning?
We've established that credit decisioning is a critical component of B2B payment terms, impacting everything from cash flow to customer relationships. By understanding the key factors, overcoming common challenges, and leveraging advanced technologies, you can optimize your credit processes. Automated solutions like PayLater offer a seamless and secure way to manage credit, ensuring your business can thrive in today's competitive market.
For more information on how to implement these strategies, book a demo with our team today to find out more
