Bnpl Isn’t Bad, or Even New – It’s Just Made for Business

By Matthew Tyrrell, APAC Commercial Director at Codat

While the Buy Now Pay Later (BNPL) sector is going through tumultuous times, the fundamental concept is still sound – the trouble is that paying later was designed to support the cash flow of business customers, rather than consumers who can’t wait until payday.

Consumer-focused BNPL providers have long been the darlings of the fintech space, but depending on who you ask, they were always living on borrowed time. It’s disappointing to see these well-intended players making headlines for all the wrong reasons, from stock price crashes and layoffs to the ongoing threat of regulation from policymakers.

Of course, the idea of buying now and paying later is nothing new. Businesses have offered such terms to other businesses for decades under names like trade finance, receivables financing and invoice financing. Net payment terms of 30, 60, 90, and even 120 days or more have been commonplace for years.

What has changed of late is that online transactions have made it much easier for sellers to embed lending products in marketplaces and checkouts, aimed at both consumers and businesses.

The core concept of receiving goods or services now and paying for them down the track might be the same for both, but B2B BNPL differs from B2C BNPL in several key respects.

For starters, BNPL is more sustainable between businesses because there is a lot more due diligence involved. Payment volumes tend to be much higher, typically 10 times greater than consumer transactions.

As a result, business BNPL requires effective risk assessment, which in turn demands access to more data and better quality data. This insight offers providers a much clearer picture of a customer’s financial situation than the view consumer BNPL providers tend to have of their customers’ financial affairs.

When it comes to BNPL, businesses expect speedy decisions, but this shouldn’t come at the expense of effective risk assessment. Access to real-time data direct from the accounting, banking and commerce systems used by small and medium businesses is key to mastering this challenging balancing act.

Access to relevant and reliable data also allows B2B BNPL providers to offer tailored pricing and flexible terms which suit the unique position of each customer. For instance, providers can use data from their customers’ payment systems such as order history, customer rates and disputes to determine the quality of their product or service and see how well the business is tracking.

Take for example, Cloudfloat, a B2B BNPL services provider which offers buyers 30, 60, or 90-day payment credit terms for a simple, up-front fee – and pays their invoices the same day. Sellers benefit from immediate payments and reduced admin, which leaves more time for running and growing their businesses. Buyers benefit from supplier loyalty, reduced risk, and avoiding the reputational harm of late payments.

Behind the scenes, Cloudfloat enables its customers to deploy BNPL via Codat’s universal business data API, which enables small businesses to digitally share and synchronise financial data without the paperwork burden.

With access to this data, B2B BNPL providers are able to overcome many of the challenges typically seen in consumer BNPL, such as poor risk mitigation, huge defaults and a lack of affordability checks.

For customers of CloudFloat, like bookkeeping firm Busy Bookkeeping, BNPL is a tool to manage cashflow peaks and troughs, as opposed to a line of credit for shopping ahead of payday.

Busy Bookeeping director Maria Jowett-Horth recalls the “aggravation of being owed huge sums in outstanding invoices and still having to scrape to cover wages or rent.”

“I have to pay wages every month before I can get paid,” Jowett-Horth says.

“My suppliers love us for paying on the nail when our bills are due, and Cloudfloat saves me from borrowing expensive money elsewhere or having to use my own funds to float my business – it’s a game-changer.”

The B2B BNPL business model is designed around building strong business relationships, rather than profiting from selling things to customers which they really can’t afford to buy – potentially sending them into spiralling debt and insolvency.

Offering B2B BNPL makes perfect sense considering that 92 per cent of small businesses experienced at least one month of negative cash flow in 2021, while 20 per cent were impacted for more than six months – an indication of chronic cash flow stress. Small businesses also typical have a very small cash buffer, with the current inflationary environment likely to eat into that even further

That thin buffer is little surprise when you consider that, while most consumers have a steady paycheck, businesses typically have to wait up to six weeks for an invoice to get paid. In that time, they must cover payroll, supply chain costs and other significant operating expenses.

The flexibility of B2B BNPL prevents business owners from getting into high-interest debt, or resorting to using their own personal funds simply to keep their businesses afloat.

Sellers also benefit from embedded processes, immediate payments and reduced admin as they don’t have to worry about reimbursement. Meanwhile, buyers benefit from increased supplier loyalty, reduced risk and avoiding the reputational damage associated with making late payments.

The rise of consumer BNPL might be starting to falter, but B2B BNPL will continue to remain a rock-solid foundation of a productive working relationship between businesses and their suppliers.