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Eliminating Payment Barriers: The Future of Supply Chain Payments is Digitization

Publication: Finance Digest

By KEO World CEO and Founder Paolo Fidanza

A supply chain crisis born of the Covid-19 pandemic continues to grow with a reported 71% of Americans experiencing supply chain issues since the beginning of the pandemic. Surging energy prices and supply chain delays continue to threaten economic recovery, causing significant issues for merchants and their working capital. B2B Buy Now, Pay Later (BNPL) options can lengthen the time between ordering and paying for goods, giving businesses much needed working capital flexibility and easing the struggle to match up financing and supplies.

According to The World Bank, one result of the pandemic has been a focus on financial inclusion, driving a notable increase in digital payments globally. World Bank Group President David Malpass further states that the digital revolution is transforming the ways in which people make and receive payments. The 2020 McKinsey Global Payments Report shows there is incredible room for growth within supply-chain finance with a potential market of up to $17 trillion globally. The trend toward growth is likely to continue to accelerate as the pandemic and related trade conflicts continue to slow the supply chain.

What is B2B BNPL Really Doing?

B2B BNPL brings the ease of the B2C buyer experience to B2B – offering a seamless, all-digital working capital solution that enables SMEs to purchase key recurring inventory essential to the growth of their business. B2B BNPL is a win-win solution for businesses and suppliers; businesses can take advantage of additional funding days on existing payment terms while suppliers benefit from getting paid upfront. This solution allows buyers to negotiate better terms and costs with their suppliers, enabling them to boost their purchasing power, increase cash flow, and optimize their working capital.

Compared to digital payment counterparts, B2B payments have been slow to digitize and modernize. It is estimated that annual B2B payments volume totals approximately $120 trillion per year globally and roughly $25 trillion per year domestically. Of the B2B (Business-to-Business) numbers being reported, only 1 out of 3 payments are being processed electronically, versus 2 out of 3 for B2C (Business-to-Consumer) spending. The majority of these B2B payments are conducted by SMBs (Small-to-Medium-Sized Businesses) who make up 99% of the businesses in the US. This is a massive market and a huge opportunity for growth within the B2B electronic spending sector.

Not surprisingly, this multibillion dollar B2B market is attracting attention and funding, marked by heavy investments by venture capitalists and investment firms. These kinds of announcements are becoming more commonplace as the interest and growth in FinTech becomes more mainstream.

The Future of B2B BNPL

Buyer and suppliers still rely heavily on manual AP/AR processes and outdated technology which can hinder payment efficiency and stunt financial health within the supply chain. Traditionally, B2B payments require manual processes and human intervention. It’s not only expensive with research firms reporting estimates of up to USD$15 to process a single invoice, but it also leaves significant room for error.

The traditional B2B payments process flow starts with supplier invoicing and then trails through a long, manual process that touches the buyer, their finance team, banks, possible transit time, facilitating the payment, and finally the supplier identifying and reconciling the payment on their end. The automation offered through B2B BNPL means that the buyer can pay the supplier directly, securely, and automatically without the added middle man.

B2B BNPL digitizes B2B payments, reducing supplier risk while maximizing profitability. This option enables businesses to access better pricing, inventory, and increase their purchasing power. With BNPL transaction volume expected to reach $680 billion worldwide by 2025, there is a clear indication that consumers and businesses are willing to embrace installment payments as a convenient and less expensive option for funding.

BNPL is attractive to both the consumer and the retailer. Consider B2C BNPL transactions; consumers can avoid high interest payments if payments are made on time, and retailers can depend on higher average order values and better conversion rates. This is translating seamlessly to the B2B markets.

The benefits of digitizing B2B payments can be transformative for buyers and suppliers alike. By streamlining tedious AR/AP processes and giving suppliers real-time visibility into payment processes, buyers and suppliers can reduce the operational expenses associated with outdated payments processes. Digitization means that all parties can more accurately manage and forecast cash flow.

The Bottom Line

The supply chain issues that have been plaguing businesses are unlikely to disappear anytime in the immediate future. In order to continue to be successful in this new climate, businesses need to be ready to think outside the box and look at innovative ways to work around supply issues. B2B BNPL solutions will continue to benefit businesses as they are adopted into mainstream financing options.


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