Fixing the Innovation Disconnect in B2B Payments
Innovation in business-to-business (B2B) payments has simply not kept pace with the level of change in consumer payments. Alternative financing options offer a perfect case in point. Consumers can now easily split purchases into multiple payments, choose “buy now, pay later” options, and more.
For example, Splitit’s consumer payment offerings take many of the pain points out of the purchase experience for shoppers, while making sure that merchants incur no risk. Ironically for some of our clients that sell both retail and wholesale, they can easily increase Average Order Value and achieve higher-ticket purchases from consumers using Splitit. But when it comes to wholesale purchases, they have to go back to the old world of purchase orders and invoices, chasing late payments, and dealing with messy collections processes.
As it turns out, the innovation disconnect is completely unnecessary if a wholesale purchaser can unlock their existing credit to place orders and set up deposits and installment payments.
The Current State of B2B Payment
As any small or medium-sized business knows, being a supplier is tough.
- Over 90% of vendors report late payments by their B2B customers
- Over 50% of invoices are overdue at any given time
- Over 20% of businesses report cash flow problems because of late payments
The solutions for these pain points typically bring a whole other level of difficulty. Often, after exhausting all of their own efforts to collect overdue unpaid invoices, suppliers are forced to have recourse to costly collections agencies or factoring providers. It seems like a necessary evil. By the time you factor in their fees and the percentages on invoices amounts, you may lose most if not all of the profit margin on the goods sold, but at least you recoup some of your costs.
Some Signs of Innovation
Some providers are beginning to innovate around these areas. They offer alternative, non-bank lines of credit or purchase financing that require an application process, or they make factoring somewhat easier to set up and manage. While these are an improvement, they don’t quite get to the root of the problem, however.
How Splitit is Changing the Game
In fact, there is a simpler way. Most wholesale purchasers have existing corporate credit cards with unused balances that would allow them to make deposits and then pay monthly installments on a purchase from a supplier. This is the same simplicity that Splitit offers merchants and partners to make consumer purchasing more seamless.
A hypothetical example shows just how this works. A local fashion boutique has noticed ApparelCo’s new collection and would like to stock it in their stores. The two companies have never done business before, and it’s ApparelCo’s first chance to put their product in front of fashion shoppers in the boutique’s market. It sounds like a great opportunity, but without a business relationship between them, the risks feel high.
ApparelCo has been around the block with this scenario before and lost money in the process. But now ApparelCo has the ability to offer split payments to the boutique, without the familiar anxiety and uncertainty around the buyer’s ability to pay. If the total order placed is $20,000, the boutique can put down a deposit of 25% and pay the rest in monthly installments, all charged to their existing corporate credit card. In turn, the card issuer places a hold for the entire purchase amount on the boutique’s card.
ApparelCo can be sure that it will be paid for the entire order at no risk to itself. They can not only get the order, but they can expand their footprint to a new city without having to gauge a new buyer’s credit or fulfill the order and hope for the best. Beyond that, they save a significant amount of time in reviewing and approving a new store based on the store’s creditworthiness, because they know the transaction is approved if the charge is successful. They know they will receive payment even if the buyer goes out of business. In addition, they can build a better relationship with the buyer because they can offer better payment terms over a longer time period without worrying about the risks of extending payment over a larger number of months.
The Beauty of Card-Based Credit for B2B
What these scenarios require is a payment solution that leverages the purchaser’s existing card-based credit rather than seeking out new lines of credit. Unlike other consumer-focused alternative financing solutions, that’s exactly what Splitit does. The beauty of that approach is that no responsible business wants to be over-leveraged or gum up its cash flow, whether they are on the buyer or the supplier side.
Splitit allows a seller to offer its customers the ability to split payments into multiple installments or to set up deferred payment options. The order passes through the Splitit Payment Platform and places a hold on the purchaser’s existing credit or debit card. With Splitit, suppliers:
- streamline their cash flow
- automatically receive deposits and payments on schedule
- bypass cumbers purchase orders
- avoid late payments and collections
- easily onboard new customers or distributors around the world
- rapidly form trusted relationships with B2B buyers
- get more flexibility in offering longer, better payment terms to potential buyers
In short, seamless, risk-free alternative financing offers the best chance to break through the innovation barrier that holds back B2B purchasing. Splitit is excited to bring that level of innovation, ease of use, and risk management to this as-yet untapped segment of payment transactions.