Going Digital: What B2B e-Commerce Merchants Need to Know about Net Terms

Whether you call it net terms, trade credit, credit lines, or BNPL for B2B, it can be hard to know what’s right for your online business. In this blog, we’ll cover the major considerations when it comes to offering terms and some tips to help you decide what’s right for you.

Net terms are a way to offer trade credit to your buyers. Whether or not you offer trade credit can depend on your business needs, industry, cash flow, etc. In most cases, net terms come in the form of providing an option to buy now and pay usually 30, 60, or 90 days later. It’s a simple concept – but making terms easy for you and your buyers online is a big task to take on. It also doesn’t necessarily make sense for every business. Understanding how and when to offer net terms can help avoid unnecessary risks and resources. 

Why Terms?

Your customers can tell you a lot about your net term needs. For example, buyers with great credit scores might prefer to pay with credit card, especially if they don’t have cash flow constraints. This is usually the case for smaller order values. So if you’re offering credit card payments today and you’re seeing healthy growth – this might be a sign that your customers’ needs are covered. 

On the other hand, what if order values are above the threshold of what business buyers are comfortable paying for by card? It might also be that your buyers are expecting terms to be able to align their payments with their AP team’s end-of-month payment cycles. Done well, businesses can make purchasing with net terms as easy as buying a shirt on Amazon. 

Bringing Terms Online

If net terms are the way to go for your business – there are two main ways to roll it out. Either you build your own net terms product, or you partner with third-party providers. 

To Build or Not to Build?

Giving your customers the choice to pay with terms at checkout can help speed up sales cycles and drive more revenue. But building it in-house is like launching a new product – it can require significant resources and expertise. Depending on the volume of transactions, this might mean having a large in-house team of account receivables, collections, fraud, and risk teams. Even if you hire a team that will do underwriting, analyze your customers’ credit history, and approve them, providing terms at scale is a major task to undertake. 

And the challenge doesn’t end at approving financing. Not only do you have to assess the buyer, and underwrite, but you have to decide on the term structure and post-payment process. How will you collect invoices? What happens if your customers don’t pay? What legal actions or dispute policies will you have in place? In B2B, the payment doesn’t end at checkout. The transaction is based on milestones. Maybe you only want to trigger the payment or invoice after delivery. Or maybe net 60 kicks off at the start of the service? There’s no one-size-fits-all when it comes to deciding on a credit policy or application process. How far back in historical data should you go? Is the annual business revenue enough to cover against risk? The questions can go on and on. The cost of doing this process incorrectly can not only hurt your cash flow but if good customers are declined or not offered the terms they want, trust and loyalty can take a hit. 

After you invoice your customer, you will need to enforce your terms, collect payment, and take on the risk of late payments or default. There are two main ways to protect cash flow when extending credit to buyers in-house:

Invoice Factoring

In this case, you sell your unpaid invoices to the factoring company and they manage collection from your customers. The benefit here is that you don’t have to worry about late payments and they take care of performing the credit checks on your customers. However, factoring companies can charge a number of fees, and sometimes the factoring price will vary by buyer. Working with traditional factoring companies can also mean considerable work on your end. You’ll often need to send invoices and customer data for review and even if the factoring company manages the collection, you’ll still need to build your own application forms, checkout flow, payment processing, etc. 

Financing

In this case, financing solutions provide you with a business loan. For specific use cases, this might make sense. It all comes down to the cost of capital. If you need less cash on hand and are processing a steady volume of high-value transactions – loans could cover your needs. If your transaction volume is less predictable and consistent, then financing could restrict your cash flow. Perhaps the biggest downside to financing is the ability to enable real-time B2B payments. Financing solutions typically are not based on real-time transactional data and are not meant for fast credit decisions. 

Offering Terms Digitally

There’s not necessarily a wrong or right here – it all comes down to how financing and invoice factoring are scaled and integrated to offer instant and seamless qualification. 

Choosing a Payment Partner

If payments and financing are not a core part of your business, building in-house can be just too big of an investment. In this case, consider choosing a solution that can do the heavy lifting. We know that this is not an easy task and that it can be confusing since there are many players in this space and some of them might look more or less the same. We’ve listed three main factors you should take into consideration as part of an evaluation process below:

Supporting your customers: The provider you choose should be able to finance as many buyers as possible. Balance maximizes approvals by leveraging our network effect and evaluating buyers across several different industries, business types, and transaction values. Balance also offers buyers different ways to qualify(whether it’s linking their bank account or filling out a short application) to better evaluate the financial health of the business. Once your buyers are approved, paying with digital terms is even easier. They just have to sign in and get a truly one-click purchase experience with terms.

Speed of qualification: A lot of terms application processes can require buyers to fill out lengthy forms, only to take days or weeks to qualify them. The ability to have buyers request terms straight from the checkout is becoming increasingly expected in providing consumer-like experiences. With Balance, buyers can request to be qualified for terms straight from the checkout. By having the option to connect their bank account, Balance can qualify buyers for terms within seconds.

Payment stack: There are many net term solutions out there, but many still require you to build the integration to the checkout, process the payment, and keep track of invoices. Balance takes 100% of the payment stack. Merchants can choose to offer the terms they want, with which payment options, and forget about qualification or underwriting. Balance takes on the risk and the approvals process while offering merchants the tech stack to implement terms directly into their e-commerce platforms. 

Takeaways

There are many perks to offering net terms. Merchants can remove barriers to purchase, increase overall sales and order value, and boost cash flow. To take advantage of this opportunity, the right approach to terms can make all the difference in a successful online experience that not only helps buyers but can maximize growth for your business. 

Balance Payments removes the hassle from payments with terms. Balance lets your B2B customers pay how they want when they want. The best part? You get paid immediately. Find more about Balance Payments here.