B2B eCommerce Payment Solutions: Five Alternatives to Selling on Credit Terms
by Kevin Heisler
The majority of B2B transactions are sold on terms allowing the customer to delay payment. While favorable to the customer, this presents certain challenges for the seller. In a 2019 report, 74% of B2B invoices were not paid on-time in the U.S. An unpaid invoice means that cash is tied up in inventory that has already been delivered which impairs a business’s growth. In fact, 32.3% of businesses claim that day-to-do operations are more difficult due to receiving late payments frequently. Other affected areas of growth due to late payment are: expansion of production capacity, the hiring of necessary personnel, marketing, and product development. It is important to manage risk and be aware of the challenges that come with selling on credit terms. In today’s economy, businesses have alternatives to this historical selling model.
Purchase orders are relatively common for business customers to utilize. Provided by the buyer to the seller, a PO indicates the types, quantities, and agreed upon prices for products or services offered by the seller. Credit terms are a component of POs and are a B2B-specific payment option that many businesses offer because they drive more sales and are a counterpart to credit cards and their associated processing fees. Credit terms are provided by the seller when a buyer places an order and term windows ranging anywhere from Net 30 to Net 60 (or longer) are offered until the invoice must be paid.
Selling on Credit Terms
Offering net terms of 30, 60, 90 or more days often leaves sellers waiting for several months to get paid. Ironically, sellers offering more generous terms such as discounts or longer terms are still paid late. PYMNTS reveals that sellers offering payment discounts or extended terms were paid late more than 75% of the time, while 27.5% of those businesses were in turn paying their own bills late. This leads to a cycle that can potentially disrupt an entire supply chain. Beyond just the risk of hindering a businesses growth, enough late payments could potentially cause a business to go under. In order to manage this risk, manufacturers should be aware of the latest B2B eCommerce payment options available and consider them to be an integral part of their eCommerce model.
Alternative B2B eCommerce Payment Methods
The following are options available to businesses as alternatives to the traditional practice of selling on credit terms:
1. Credit Cards and Payment Gateways
The Payment Card Industry Data Security Standard (PCIDSS) defines how sellers accepting credit card payments manage their payment gateways. This standard ensures that payment gateways manage confidential data securely. Credit card processing is an effective way to handle B2B eCommerce payments, but there are many options available and it is crucial that each option is thoroughly researched before committing.
PayPal is a convenient payment method because it allows a buyers payment methods to be connected by a central payment gateway. Providing PayPal as an additional option could prove helpful in driving first-time purchases. Buyers who are concerned with entering their credit card information into unknown websites benefit from this option because PayPal is a well-known secure method of payment in the B2C eCommerce space and is now crossing into B2B.
MSTS is a B2B payment and credit solutions provider that facilitates this process by providing businesses Credit as a Service® (CaaS). CaaS allows companies to access B2B payment and credit solutions while also offering dynamic pricing and automated purchase controls which provide a streamlined experience for customers. MSTS essentially eliminates the need for accounts receivable and accounts payable within an organization.
Apruve allows flexible payment terms and is an attractive option for first-time buyers because of its online credit approval process. After filling out a credit application, Apruve determines the risk profile of a business and uses that to determine their credit terms. Apruve’s API is seamlessly integrated with the seller’s order management system all the while validating credit limits and managing invoices.
Square is a payment processing solution that offers competitive payment solutions for businesses. Modernizing the way payments are handled, Square has a large presence within B2C eCommerce and is supported by many large businesses. Square offers business debit cards and invoice solutions, as well as card readers that can be standalone or connected to a smartphone to process transactions.
As a part of managing risk and offering options to customers, businesses should explore alternatives to selling on credit terms. Buyer expectations are changing and understanding the alternatives is important to offering customers flexibility. These options continue to evolve, and will further expand as new payment methods are developed.