B2B BNPL providers are confident that challenging economic conditions will boost demand for their services.

The buy now pay later (BNPL) market has stuttered over the last 12 months with a combination of interest rate hikes impacting the cost of credit and the prospect of increased regulation leading to a sharp downgrade in the value of some of its largest players in the B2C space.

In contrast, B2B BNPL providers are increasingly confident that their offerings not only improve access to finance while reducing the risk of non-payment, but can also help businesses grow revenues.

Christian Grobe, Co-Founder and Managing Director of Billie says his company’s research and its merchants’ numbers suggest that customers are more likely to make a purchase if they have the option to pay later.

“For merchants, BNPL and corporate credit cards are comparable in terms of cash flow benefits in that both pay merchants quickly after a transaction is made,” he says. “For buyers, however, there are clear advantages. On average, buyers receive payment terms twice as long when purchasing with BNPL due to the fact that credit card bills are always settled on a fixed day in a month. With BNPL buyers always have at least 30 days until settlement, regardless of the time of purchase.”

Malte Huffmann, Co-Founder and Co-CEO of Mondu refers to surveys conducted by IBI Research in the German market that show that 95% of all companies would like flexible payment terms for online purchases, but only 45% of B2B web stores currently offer BNPL to existing and new customers at their checkout.

“Businesses that offer flexible payment terms such as net terms and instalments can gain a competitive advantage while increasing their conversion rate, average order values and sales,” he says. “By replacing the outdated, manual, time-consuming credit check with one that takes place in real time, merchants can save customers time and effort by providing immediate confirmation.”

B2B merchants benefit from seamless integration, outsourced credit risk and control, and much higher sales volumes and average order values while their trade buyers benefit from instant credit decisions, increased spending power, a choice of payment methods, and more flexible repayment terms agrees Anil Stocker, CEO & Co-Founder of Kriya.

“There are a number of ways our merchants can integrate and deploy embedded finance,” he says. “These include various e-commerce integrations, which can be turned on in a matter of hours so they can quickly start offering the advantages of embedded finance to their customers.”

White-labelled B2B embedded lending is an effective customer acquisition tool for banks and lenders, who can now easily extend their reach and display their brand in front of new business customers. When financial products are made easily accessible to customers at the time and place they need them most, this serves as an entry point to turn a financing applicant into a lifetime customer.

That is the view of Yaacov Martin, CEO of Jifiti, who notes that since loans can be distributed quickly and easily when they are embedded at the point of sale, banks and lenders are able to significantly increase and broaden their B2B lending portfolios.

“Merchants that offer BNPL benefit from minimising late payments and eliminating manual processes and admin,” he says. “Invoice financing typically is very admin-intensive – an unnecessary drain on resources, time and money. As the BNPL process is automated, merchants that already offer financing can upgrade their existing manual processes.”

Sean Watkins, VP Revenue Operations at Merchant Growth also refers to the reduction or elimination of internal credit management. Companies will usually have their own credit management team that is responsible for underwriting credit applications and after the initial approval, this credit needs to be monitored on an ongoing basis. If there are any losses, there is a lengthy process of trying to collect from the buyer.

“Cash flow is one of the main benefits of B2B BNPL for both buyer and seller,” he says. “The former has the ability to break down their payments for as long as 12 months, while the latter receives next day settlements. These payment terms are offered for as little as 0%, which is obviously much more attractive to small businesses than alternative financing options.”

From the seller’s standpoint, settlement is quick. They do not need to have the receivable on their books and then use it to access capital as it is settled at the point of sale.

According to Ashish Srimal, Co-Founder and CEO of Ratio, B2B BNPL boosts sales conversions by accelerating or closing deals that may have been delayed or even lost by offering a one-size-fits-all solution.

“BNPL allows businesses to turn recurring revenue streams into upfront cash, allowing them to fund their growth without debt, discounts, or distractions,” he says. “When customers can pay in manageable instalments tailored to their particular cash flow needs they are more likely to close faster and be open to making additional purchases, allowing the business to leverage cross-sell or upsell opportunities and increase total contract value.”

Rising interest rates are something of a double-edged sword for the sector, with increased cost of capital balanced by higher demand for flexible payment terms.

“The UK has experienced three years of extreme uncertainty – SMEs are under increased pressure due to heightened inflation and financing is much harder to secure as a result,” says Stocker. “B2B BNPL could be the solution to navigating supply price increases, inflation and utility costs and maybe even [enable companies to] forgo the need to pass on many of these rising costs to their customers.”

According to Martin, rising interest rates and economic uncertainty have sparked a shift in demand for the stable, responsible B2B loans provided by banks and other regulated lenders.

“Banks are less affected by economic instability and interest rate hikes than the BNPL fintechs as they have a lower cost of capital,” he adds. “Those banks who offer the most competitive interest rates are positioned to become leaders in this space.”

Businesses are often buying from suppliers for the purposes of growth and have a clear return on investment tied to their purchase, whether it is inventory or technology, suggests Watkins.

“This means that these are not optional purchases that can be delayed,” he says. “Economic uncertainty gets suppliers thinking more about their willingness to take credit risk, while buyers are focusing on extending their runway and improving cash flow – and B2B BNPL is one of the solutions.”

Srimal accepts that higher interest rates and economic uncertainty affect some price sensitive customers’ decisions to seek financing for purchases, but also refers to increased adoption of BNPL as a means of conserving cash by deferring payment.

“This streamlined approach allows businesses to raise capital to drive growth with no dilution of equity and no restrictive covenants or relinquishing of strategic control,” he adds. “And best of all, the new capital can be accessed immediately upon the close of every contract no matter when the product and service is delivered.”