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Embedded Trade Credit Diverges From The BNPL Path

Unlike in consumer commerce, making purchases on trade credit has been a staple in B2B commerce for decades. Yet it’s only recently that trade credit has begun reframing itself as the B2B equivalent of the popular and rapidly expanding buy now, pay later (BNPL) model found within the consumer transactions ecosystem.

In many ways, B2B trade credit and financing continues to follow along the path of the business-to-consumer (B2C) world. It’s no surprise, considering B2B payments and commerce have similarly taken pages out of B2C payments and commerce’s books to drive modernization.

Yet make no mistake, Rob Rosenblatt, CEO of Behalf, recently told PYMNTS that, as trade credit evolves, it must forge its own path towards optimizing the flow of commerce and funds between businesses as the industry digitizes at its own pace. As he explained, the positioning trade credit to where business customers source and procure goods and services will help facilitate a more consumer-like experience, but there are plenty of ways B2B BNPL cannot, and should not, mirror its consumer-facing counterpart.

A Forward-Looking View

B2B suppliers have long struggled to extend credit to their business customers, though for many transactions, it’s a necessity. Especially for smaller vendors, the weight of analyzing a customer’s risk profile and underwriting the client can be an arduous process that, when not done appropriately, can expose a business to late and nonpayment.

Lifting that burden from a supplier and onto a third party can create a more reliable way to extend trade credit while supporting the cash flow needs of each side of a B2B transaction. Yet as more FinTechs step in to fill that role, Rosenblatt said they must be aware that this process shouldn’t look exactly like consumer-focused BNPL solutions.

“In-purchase financing is fundamentally different,” he said. “We’re typically talking about much, much larger transaction sizes, and the underwriting requirements are much more complex. Simply pulling the customer’s personal FICO score and checking a couple of the parameters really isn’t going to do the trick.”

Underwriting must take a more forward-looking view of a business buyer. Not only should solutions be able to assess the creditworthiness of a customer at a given point in time but must also take into consideration its future growth potential, market seasonality, past B2B payment behaviors and, overall, take a more “futuristic viewpoint” of the organization, noted Rosenblatt.

As the B2B trade credit and in-purchase financing technology arena evolves to support the modernization of B2B trade, commerce and payments, it must also explore ways to provide a more customized and strategic approach to financing than a traditional consumer BNPL tool would.

For instance, Rosenblatt pointed to Behalf’s ability to integrate a solution at the SKU-level to present individual pricing and more flexible repayment options to a buyer.

Driving The Future Of B2B

The reframing a legacy trade credit as a B2B BNPL solution has much to do with the role BNPL plays in driving the proliferation of digital consumer commerce. As B2B organizations look to embrace a digital platform to connect with customers and transact, having the embedded financing solutions their customers need at the point of purchase can offer a seamless end-user experience that Rosenblatt said offers demonstrable impacts on average order size for a merchant.

This trend is also being driven by the rise of electronic B2B payments, and the need for a B2B payment mechanism that can meet the cash flow needs of both buyer and supplier. In recent years, the commercial card has looked to fill that need. Yet while card adoption is on the rise in B2B transactions, Rosenblatt noted the tool isn’t versatile enough for the high transaction values typically seen in B2B commerce.

It creates the opportunity for integrated trade credit and other in-purchase financing solutions to frame their own narrative as another B2B payment method from which businesses can choose.

As a tool that sits at the intersection of B2B commerce and payments, trade credit technology also has the ability to accelerate the expansion of digital trade. Flexible technology enables such solutions to integrate seamlessly within suppliers’ proprietary portals or broader B2B marketplaces. Rosenblatt also noted, though, that the tool must be able to support the transactions that are still occurring largely offline, whether completed via phone, email or in-person.

Meeting buyers and suppliers where they are is key to adoption, yet B2B commerce modernization is accelerating, and the demand for embedded financing functionality will grow, thanks to the proliferation of BNPL in the consumer space and the nuanced, complex needs of B2B partners that cannot be met by traditional solutions.

“In-purchase financing products are going to be a requirement,” Rosenblatt said. “It’s up to all of the innovators in the space to adapt to the somewhat complex requirements of these B2B marketplaces.”

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