The future of international trade finance: B2B BNPL

Businesses of all sizes are reaching across borders to tap into new markets and opportunities. Cross-border trade volumes are surging, with SMEs leading the charge. However, the traditional methods of international trade create bottlenecks due to their slow processing times and hidden fees and can act like a handbrake on this global growth. 

This post introduces a powerful solution: Buy Now Pay Later (BNPL) for B2B transactions. We'll explore how B2B BNPL cuts through the complexities of international trade, offering faster approvals, lower costs, and a smoother experience for buyers and sellers alike.

The challenges of traditional trade finance

Traditional trade finance methods like letters of credit, trade credit and factoring are essential but come with significant challenges. They often involve long, bureaucratic processes and high costs, including interest rates and transaction fees, adding 5-10% to the cost of cross-border trade. This especially impacts SMEs' competitiveness and is less accessible in economies with underdeveloped banking infrastructures.

Trade credits and guarantees

Trade credit allows buyers to purchase goods and pay for them at a later date, and is utilized in over 80% of global transactions. Extending trade credit to international buyers acts like a loan by the merchant, tying up their capital and straining cash flow. This financial burden, coupled with the risk of late or non-payment of the buyer, increases operational costs and limits a seller's ability to compete globally.

While letters of credit offer a security for sellers, since a bank guarantees payment upon fulfilment of specific conditions, their processing times can take up to several weeks, delaying transactions further.

Factoring

Factoring offers immediate cash for receivables (i.e. the merchant sells unpaid invoices where the payment deadline hasn’t expired yet). But fees can eat into profits, create an unhealthy reliance on external funding, and add administrative headaches. Additionally, even with factoring, the seller may still face the risk of non-payment, depending on the factor's coverage.

B2B BNPL: a game changer for business transactions

Due to the challenges of traditional methods, businesses are increasingly turning to B2B BNPL. So how does B2B BNPL work? The core features are designed to address the needs of both buyers and sellers.

Buyers receive extended payment terms, typically ranging from an additional 15 to 90 days, which frees up their cash flow to invest in other business expenses.

For sellers, BNPL ensures they receive immediate payment upon fulfillment of the transaction, mitigating the risk of non-payment and providing a steady cash flow.

The transaction is typically financed by a third party, the BNPL provider, who facilitates the transaction, ensuring security, mitigating risk and creating a smooth experience.

Like the B2C space, B2B BNPL offers corporate buyers flexibility, allowing them to manage their finances better by delaying payments. The benefits have led to a significant market, valued at an estimated $500 billion in 2023 and projected to grow further, while merchants report up to 30% higher average order values when offering BNPL to business customers.

A powerful ally for global expansion

With traditional methods posing several challenges, B2B BNPL emerges as a game-changing solution for businesses looking to streamline their international operations. The innovative financing option frees up working capital for both buyers and sellers, while advanced risk management tools mitigate non-payment risks. It also cuts through the slow processing times and hidden fees of traditional methods, offering faster approvals, lower costs, and immediate settlements.

By simplifying processes and offering multi-currency support, B2B BNPL empowers businesses to navigate international trade with greater confidence, fostering a more dynamic and efficient global trade environment.

The power of multi-currency BNPL

Multi-currency support eliminates the complexities and hidden costs often associated with traditional currency exchange. Companies no longer need to navigate fluctuating exchange rates or worry about unpredictable conversion fees - both of which can eat into profits.

A seamless multi-currency experience frees businesses to focus on what they do best: growing their international operations, rather than getting bogged down in financial logistics.

Reducing administrative burdens and errors

B2B BNPL also empowers businesses with advanced risk management features and transparent, digital processes.

Automated buyer assessments leverage cutting-edge algorithms and machine learning to evaluate the business customer’s creditworthiness in real time, within minutes. At the same time, it significantly reduces the risk of non-payment, which translates to greater confidence when conducting international transactions.

Furthermore, debt collection services provide an additional layer of security by efficiently managing overdue payments, recovering outstanding balances and minimizing potential losses for merchants.

Meeting modern payment expectations

Wire transfers, digital wallets, and cards are plagued by limitations like restrictions, fees, and credit constraints, hindering cash flow and growth. Today, business customers crave the agility of modern payment methods similar to B2C: flexible terms, instant approvals, and seamless digital support.

B2B BNPL steps in to address these needs head-on, offering the flexibility, speed, and digital support that corporate customers require. A smoother payment experience unlocks new revenue opportunities by streamlining transactions and accelerating approvals. Furthermore, the opportunity to pay with flexibility boosts the willingness to pay, speeding up dealmaking, increases customer satisfaction and helps to attract new business.

B2B BNPL isn't just a new financing option, it's a complete transformation of how businesses approach international trade. It unlocks new opportunities, fosters a more secure trading environment, and empowers businesses to compete and thrive in today's dynamic global market.

Introducing B2B BNPL in your business

Choosing a reliable BNPL provider to manage these transactions is crucial. Providers like PastPay offer strong risk management system and multi-currency support, allowing businesses to handle transactions in various currencies supported by iBanFirst, without the hassle of conversion fees and exchange rate fluctuations.

Integration can be accomplished through plug-and-play solutions or comprehensive APIs that connect BNPL options to the existing sales platform - or even multiple sales channels - of the merchant.

When a buyer checks out, the BNPL system runs an instant credit check in minutes to ensure they're approved to pay later. Once approved and the process is complete, the merchant gets paid instantly, while the buyer enjoys the extended payment terms of typically 15-90 day, to manage their cash flow

For instance, a German manufacturer selling equipment to a Polish retailer can use B2B BNPL to get paid upfront, while the retailer has breathing room to manage inventory and sales. Technology fuels this efficiency, with real-time credit checks, transaction tracking, and automated collections keeping things smooth and secure.

The future of frictionless trade finance

The future of international trade finance is promising, fueled by cutting-edge innovations transforming the B2B landscape. Predictions point to explosive growth as businesses seek the flexibility and accessibility that B2B BNPL offers.

Companies that embrace B2B BNPL gain a competitive edge by attracting new clients and boosting sales through extended payment terms. Real-world success stories showcase the quantitative - increased sales - and qualitative - stronger relationships, improved cash flow - benefits of BNPL.

In today's competitive landscape, B2B BNPL isn't just financing, it's a strategic advantage for businesses poised to thrive.