Managing trade credit in-house: The problem you never knew you had

Trade credit is an indispensable tool that can propel businesses to new heights. And for many companies, the concept of managing trade credit in-house might seem like a necessary and straightforward approach.

However, the evolution of financial technology (like embedded finance) and B2B payment solutions has ushered in a new era of efficiency and opportunity. For example, B2B Buy Now Pay Later (BNPL) solutions enable businesses to offer instant trade credit at the checkout, leveraging real-time data analytics to make credit decisions within seconds, revolutionising the way transactions take place in the B2B space.

This article delves into trade credit management, what’s available to you as a business, and explores how businesses can elevate their processes by embracing these new solutions.

The Traditional In-House Approach: A Double-Edged Sword

Managing trade credit in-house has been the norm for businesses seeking to facilitate transactions with their B2B customers. After all, 95% of business customers prefer not to pay upfront. As a result, it’s great for building customer relationships, loyalty, and increasing B2B sales.

But while this approach offers a degree of control and familiarity, it often comes with inherent challenges:

1. Complexity Amidst Necessity

Handling trade credit in-house involves a labyrinth of intricate steps. From assessing creditworthiness and conducting manual credit checks to determining appropriate credit limits, these processes demand time and attention. As your business expands, these manual processes become increasingly complex, leading to delayed transactions and frustrated buyers.

2. Risk and Uncertainty

Unfortunately, credit risk is a constant companion when you manage trade credit in-house. By managing credit internally, you expose yourself to the inherent risk of delayed payments, non-payments, and defaults. Each extension of credit becomes a gamble, with potential consequences ranging from cash flow disruptions to the loss of profits.

3. Operational Overhead

In-house credit management generates a significant administrative workload. Teams are tasked with the responsibilities of credit checks, approval processes, and collections, diverting valuable human resources from core business activities. This administrative burden translates to increased costs and reduced operational efficiency.

4. Sales Stagnation and Poor Customer Experience

Because the traditional trade credit approach often entails these lengthy credit approval processes, delays can lead to frustrated potential buyers. These buyers may seek faster alternatives, potentially resulting in lost sales opportunities. In a fast-paced business environment, swift and streamlined transactions are essential to maintaining a competitive edge.

5. Limited Scalability

Finally, let’s not forget about what happens as your business grows. Can you keep this same process up, with the same level of performance, when your customer base doubles or even triples? Scaling up while maintaining the same manual processes can lead to bottlenecks, increased errors, and inefficiencies. This growth limitation can curb your potential for expansion and success.

So what’s the alternative? How can you offer your customers their preferred payment method when faced with all these problems?

B2B BNPL - Trade Credit for Modern B2B Selling

B2B BNPL has become increasingly popular over the past 5 years for a number of reasons. The issues listed above are all related to the ‘old’ way of doing things, manually. Check out the image below to see a side-by-side comparison of managing trade credit in-house compared to Two’s B2B BNPL solutions: (FYI - we have four B2B payment solutions for a variety of scenarios, check them out below - E-Commerce Checkout, Trade Account, Order Creator, Instalments).

1. Upfront payments

As we’ve established, waiting for payments creates a host of cash flow issues. With B2B BNPL, however, you’re paid upfront. Take Two, for example. Once a buyer places an order, you’re paid regardless of the payment term.

That means no need for traditional invoice financing, debt factoring, or credit lines with your bank. With instant payments, you have access to previously tied up capital to continue growing your business.

Find out how Two drastically improved Kandidate’s cash flow (and saved them 15 hours of manual work a week!)

2. Accelerates B2B sales

Traditional trade credit is known to increase B2B sales as it’s the preferred choice for buyers. But that doesn’t mean it’s an optimal process. Performing credit and ID checks to even offer trade credit can be a tedious task that often takes days, slowing the whole sales process down considerably. You want a checkout experience that is smooth, fast, and easy for buyers to use.

BNPL for B2B solutions like Two integrate instant ID-verification and credit checks into your checkout so customers can apply for trade credit there and then. Offsetting this workload means customers know instantly if they’re eligible for credit, drastically improving everything from conversion rates and overall B2B sales to average order value.

‍3. Cuts admin time

Many businesses are simply unable to tap into the demand of purchases by invoice because it requires too much manual work. Managing an invoice payment solution in-house requires specialist staff to organise invoices and stay on top of payments.

But with BNPL B2B, merchants can simplify operations across multiple departments and save time, making it super easy to stay organised and save multiple hours a week in manual work.

RiktigHandel, for example, a Norwegian construction company saved 20 hours a month simply by using Two’s E-Commerce Checkout solution!

4. Increases customer retention

The issue of a complicated checkout experience for B2B buyers shouldn’t be understated. In fact, 77% of B2B buyers say their latest purchase was either difficult or very complex. Loaded with useful features for this very reason, BNPL B2B solves the all too familiar challenges of merchants who want to offer their customers net terms. Offering a BNPL B2B solution that works for your customer ensures (or at the very least increases) your chances of keeping them loyal.

5. Offset credit risk

One of the major challenges with offering trade credit in-house is establishing how likely a customer is to pay you on time. Performing these checks yourself can be extremely time consuming and working with a 3rd party can be costly.

Using Two allows you to offset the credit risk associated with offering trade credit, leaving you free to sell and get paid without the worry.

So there you have it, the case for switching to a B2B BNPL provider (like Two!). If you’d like to learn more about how Two can help take your business to the next level, make sure you book a free demo with our expert team!