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Pay by invoice

Paying by invoice is one of the most popular payment method in B2B commerce. It allows buyers to receive products upfront and pay on account after a certain period, increasing sales and customer loyalty. However, this payment method isn’t always available to every customer as it comes with substantial risks for sellers in the form of payment defaults. For this reason, only 45% of sellers offer invoice payments to all their buyers, while more than 90% of buyers wish to use this method. This article explains how B2B businesses can provide invoice payments for new customers without taking unnecessary risks.

Advantages of invoice payment 

For new buyers, paying by invoice offers numerous advantages. For a start, invoice payments increase a buyer’s confidence in a business as they can check goods before making a full payment. Invoice payments also improve a buyer’s cash flow, enabling better liquidity management until the payment deadline. This leeway can be especially desirable for business customers who need to precisely plan their expenditures and income. On the other hand, offering these payment terms can help sellers stand out from competitors, attract new customers, and increase revenue. 

Risks when selling by invoice

While invoice payments offer sellers significant advantages, they also pose a risk of payment default. Failure to accurately assess a customer’s ability and willingness to pay can lead to considerable financial losses. Without a thorough prior assessment of the customer’s financial situation, the risk of payment default increases significantly. 

Key risk factors for new customers

  • Unknown payment history: Without thorough credit checks, sellers lack information about a new customer’s previous payment behaviour and ability to pay. Companies cannot assess whether the customer has paid invoices on time in the past.
  • Increased default risks: The likelihood of payment default rises if there is no prior assessment of a customer’s financial situation. This can lead to liquidity bottlenecks and financial losses for sellers.
  • Lack of collateral: Unlike prepayment or other payment methods, invoice payments without credit checks provide sellers with no direct security. Goods are delivered without any payment guarantee.
  • Administrative effort: Payment defaults not only require compensation for the financial loss but also lead to increased administrative effort through the initiation of dunning procedures or the commissioning of debt collection services.
  • Damage to customer relationships: In cases where payments are not made and dunning procedures are required, this may harm the relationship with new customers, even if payment difficulties are temporary.

Credit checks are key to offering invoice payments to new customers

Finding a balance between offering invoice payment options and managing financial risk is achievable. The key is having an effective risk strategy centred around robust credit checks. These checks provide valuable insights into the ability and willingness of new customers to pay and enable sellers to make informed decisions.

However, effectively running credit checks for new customers in-house isn’t easy. It poses significant challenges primarily due to the difficulty in accessing comprehensive and up-to-date financial data, the costs associated with obtaining detailed credit reports, and the expertise required to accurately analyse financial information. The credit check process is time-consuming and resource-intensive, often necessitating dedicated personnel. Sellers must also consider legal and compliance obligations, which adds complexity and costs. 

To overcome these challenges, merchants and marketplaces are increasingly partnering with external services that provide credit checks and protection against payment default, enabling them to offer invoice payments to new customers more efficiently and without the risks. Such providers enable real-time credit checks for a fast and smooth purchasing experience.

Interested in learning more about paying by invoice?

Discover how E-FARM successfully grew its customer base by 13% after adopting Mondu’s Buy Now, Pay Later (BNPL) solution. The solution enables E-FARM to offer new customers a secure and immediate purchase on account, combining thorough credit checks with a user-friendly payment process. Read the full case study here.

Content & SEO Manager

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