Trade customer expectations are higher than ever. PwC has identified their customer experience as the “new battleground” in which long-term business custom is won or lost.
Business leaders recognise that offering flexible online B2B payment options is crucial for attracting and retaining valuable customers. The question becomes, “How do I offer finance to my customers to create a positive buying experience?”
Expecting customers to pay the full amount immediately causes them to hesitate, which means:
- High cart abandonment, with 29% of customers abandoning their purchase due to a lack of flexible payment methods, according to Allianz.
- Missed sales as they notice competitors offering more flexible payment options.
- Lower customer loyalty as they decide to switch to a rival, and the business loses out on future sales.
Offering customer financing, with its myriad in-house and outsourced B2B payment options, is the perfect way for businesses to avoid these barriers.
In this guide, we will look in detail at how to offer finance to customers online, including which options are available to businesses and how to choose the right finance provider should they decide to outsource payments.
Read on to find out:
What is customer financing?
What are the benefits of customer financing?
What are the risks involved in offering customer finance?
What are the current trends in B2B financing?
How can I offer finance to my customers safely?
Can I offer finance to my customers? A summary
What is customer financing?
Customer financing is a payment option that allows buyers to purchase products or services immediately while spreading the cost over time through instalment plans, loans, or credit arrangements.
This popular concept has led to many offshoots over the years, financing options that vary in style but follow a broadly similar concept of staggered payments.
Business leaders should be aware of the following customer financing options if they are to create a winning customer experience and maximise their sales.
Credit cards
Credit cards have been around for decades and are similarly prevalent in the B2C and B2B worlds, although the former just edges it.
Customers can make purchases on credit and pay later, but interest charges are normally high, and they may have to pay extra charges depending on how long they owe a deficit.
Store cards
Store credit cards work on the same principle as above, except they are offered by specific retailers.
Special financing terms for purchases from that store often muddy the waters, however, and lead to customer complaints in both the B2B and B2C worlds.
Lease-to-own
Lease-to-own is a common financing method in the business world for big-ticket items, including machinery and vehicles. It allows business customers to use the product while making payments towards owing it in full.
Invoice financing
Paying on credit via invoicing is very common in the offline B2B world and is becoming common practice online too , particularly with the digitisation of B2B Commerce.
Buyers benefit from extra payment terms here, which let them pay the full sum later (e.g., 30, 60, or 90 days) instead of spreading the cost in instalments. Offering these net terms across all sales channels harmonises the buying journey for trade customers.
Point-of-sale loans
POS financing is a flexible finance option offered directly at checkout, both online and in-store.
It is structured as short-term, often interest-free credit that lets customers break payments into instalments and repay with flexible terms.
Fintech company Klarna’s method is a famous example of this in the business-to-consumer (B2C) world.
Buy Now, Pay Later (BNPL) and instalment plans
A form of POS financing, B2B BNPL differs from B2C methods (like Klarna) in that it’s tailored for business transactions, often involving larger order values and extended payment terms.
BNPL is very similar to instalment plans in that they both allow buyers to spread the cost of a purchase over time. However, BNPL typically involves a shorter repayment period and often includes a zero-interest option for a limited time.
The demand for flexible B2B payment solutions like these is growing, with more companies seeking options that provide faster approvals and adaptable financing structures.
Recent Juniper research shows that B2B BNPL is driving a global surge in this type of payment, which is set to hit $687 billion by 2028 – double its 2024 figure.
However, as useful as they are, in-house BNPL services can still cause the seller problems if the buyer runs into financial difficulties.
Many businesses are turning to third-party providers as a result: they receive the full amount of the sale right away from the BNPL provider, whom the buyer must then repay in instalments. This relieves the hassle of dealing with late or missed payments for a retailer who may not know what to do if a customer doesn’t pay.
The digitisation of B2B commerce and the growing number of providers are making these methods more accessible and easier to offer for businesses.
What are the benefits of customer financing?
The benefits that customer financing brings to both sellers and buyers are the driving force behind the increase in its use, particularly in B2B BNPL payments.
Sellers
Improve cash flow
With customer financing, businesses get to manage customer payment plans directly, which helps with cash flow and planning, as they can expect to receive a certain amount at a certain time. The obvious downside to this is when the buyer can’t or won’t pay.
A third-party consumer finance provider helps avoid this. The seller receives full upfront payment, which keeps cash flow ticking along. The provider handles credit score checks, payment collection, and late payments while the money sits in your bank account or is put to use elsewhere.
“Among the growing forms of payment processing, I find the emergence of buy now pay later (BNPL) at the B2B level can help build more confidence among businesses to pay suppliers on time,” says Dmytro Spillka, founder of online price comparison tool Coinprompter, speaking to Forbes. This is especially relevant for businesses relying on incoming payments to maintain the cash flow needed to pay their providers on time.”
Boost sales and Average Order Value (AOV)
Customers are more likely to buy when they can remove the upfront payment hurdle and spread payments over time. Higher-priced items become more accessible with financing options, thus increasing the average order value.
Expand the seller’s customer base
Flexible payment methods attract new customers and build lasting loyalty.
Compete with rivals
With many large retailers already offering finance solutions, businesses that don’t offer similar flexible financing options risk falling behind the competition.
Buyers
Better purchasing power
Business buyers get to split purchase costs into manageable instalments, making expensive items accessible without heavy upfront payments. The chances of a positive customer experience that they’ll associate with the selling brand will also increase.
Greater financial flexibility and well-being
Interest-free BNPL and tailored instalment plans give customers control over spending and lets them build credit responsibly, which improves their financial well-being.
What are the risks involved in offering finance?
Businesses that add financing to their list of services must plan for the potential downsides that come with it, particularly if they are responsible for credit handling.
The most obvious danger is the risk of defaulted payments. Business customers who buy on credit may hit cash flow difficulties and even become insolvent before they can pay the amount back. The seller, therefore, loses this money and might experience financial problems if this happens frequently.
A business also risks its reputation when offering finance. They must strike a balance between offering friendly customer service and collecting outstanding payments. Get this wrong with poor communication or aggressive collection methods, and it might reflect badly on them rather than the buyer.
Managing financing options can also be a complicated process. Business sellers must make sure they have the right financing plans, resources, and expertise to carry it out successfully.
Offering credit also makes a business more attractive to fraudsters, who will attempt to make purchases with stolen identities or fraudulent payment information. With 75% of UK and US businesses reporting fraudulent B2B payment attempts, this is a pressing issue for business leaders.
Finally, compliance is an ever-present concern when it comes to offering finance to customers. UK businesses, for example, must navigate regulations like the Financial Conduct Authority (FCA) authorisation, the Consumer Credit Act, and data protection laws like GDPR. This legislation requires them to carry out affordability checks, adhere to advertising standards, and have robust complaints handling processes.
Partnering with established finance providers can help mitigate some of these risks, although it’s always prudent to seek independent financial advice even when using these.
What are the current trends in B2B financing?
Technological advancements and growing business customer expectations are driving a sea-change in B2B financing. This can be broken down into several key trends that business leaders must closely monitor to remain competitive.
Hybrid models
Digitisation is increasing, with research firm PYMNTS pointing out that 79% of B2B suppliers use some form of digital payment method.
Yet, some financing options are adopting a hybrid approach, combining the convenience of online applications with the personalised touch of offline interactions.
With modern payments solutions being channel-agnostic, this harmonises the buying journey. It also provides space for complex deals to be negotiated and approved efficiently while still maintaining a human element.
Seamless e-commerce integration
Clunky redirects and disjointed processes mean that some digital financial options are still cumbersome.
Many are increasingly being integrated directly into B2B e-commerce platforms. Buyers get a frictionless experience, allowing them to explore and select financing options without leaving the merchant’s website.
Real-time credit decisions
Time is of the essence in the fast-paced world of B2B commerce.
Online systems are now enabling faster and, in some cases, instant credit decisions. This leads to a faster purchasing process with fewer obstacles and opportunities to abandon the process.
How can I offer finance to my customers safely?
Should a business decide to offer finance to its customers, then there are two possible routes it can go down: provide in-house financing or outsource it to a third-party financing company to take care of the process.
In-house financing
Some businesses offer trade credit in-house, acting as both seller and creditor. This allows customers to buy now and pay later, but it also comes with financial risks.
Tied up capital
With in-house financing, the seller won’t get the funds right away, which impacts their cash flow. Capital that they can use to fund operations and growth is instead tied up in the deal.
Higher costs
Managing the application process, invoicing, and collections adds to expenses, especially when a customer defaults or is late paying.
Credit risk
The fact that customers may default means the business must carry out stricter credit checks and a more extensive approval process.
Customer relationships
Strict repayment terms and credit checks may put the business in a bad light with customers or even strain working relationships with them.
Compliance challenges
To offer in-house financing, businesses must follow tough compliance laws that require their own (sometimes costly) expertise.
While in-house financing offers control, many businesses use third-party financing to reduce risk while providing flexible payment options.
Third-party financing
Managing trade credit in-house can be complex and resource-intensive.
Third-party financing providers specialise in credit management, helping businesses reduce risk, cut costs, and streamline operations.
Here’s why outsourcing makes sense for a growing number of businesses.
Access to expertise and infrastructure
Third-party providers bring industry-specific knowledge and risk management tools to handle credit approvals and payment collections.
No risk of non-payment
The provider pays the seller the full amount immediately after the sale. They assume responsibility for late payments and defaults, so the merchant doesn’t run the risk of bad debt or non-payment.
Reduced administrative burden
Handling everything in-house requires time and resources, third-party financing frees the seller from these, so they get more of both to invest in their business’s growth.
Cost savings
Building an in-house credit management system requires technology, training, and staffing. Third-party financing doesn’t require a business to have any of these.
Despite these advantages, it is still essential to choose a financing provider with a strong reputation, and that complies with Financial Conduct Authority (FCA) regulations.
Customised solutions
In the world of B2B, one size rarely fits all. Many third-party financing providers excel at crafting bespoke solutions that cater to the unique nuances of each transaction.
This might be offering a complex payment schedule, structuring a deal for a high-value purchase, or addressing industry-specific requirements.
Do this well, and businesses can build stronger customer relationships and be a significant differentiator in today’s competitive B2B market.
Can I offer finance to my customers? A summary
Knowing how to provide financing for customers is not just an important new revenue stream but a potential competitive advantage over rivals.
Buy Now, Pay Later (BNPL) and instalment plans are forms of short-term customer financing, which make higher-priced products more accessible, so customers are more likely to buy from a business and even spend more than they normally would.
In-house financing is one way of doing this, but it ties up capital and demands time and resources to operate.
Third-party financing, which is a repayment process run by an external provider, lets the business get the full payment upfront while outsourcing credit risk, collections, and compliance, freeing up more resources for growth tasks.
Choosing the right financing solution ensures a win-win for a seller and its customers — they get paid upfront and don’t have to deal with complex repayment issues, while their customers enjoy flexible payments and an enhanced buying experience.
See how Mondu’s BNPL can open up a world of new possibilities for your business. Contact us today to book a demo and find out how you can increase sales with us.
