Long before there was ever the notion of consumer point-of-sale financing, businesses were applying for and getting financing for their purchases in the form of invoice factoring, net terms or lines of credit from their suppliers.
The problem is that this traditional B2B financing is typically a manual, high-friction and time-consuming process for the merchants that sell to businesses. Invoices need to be processed, and payments need to be tracked, reconciliated and chased up. It takes, on average, as long as 10 days for businesses to process a single invoice.
Enter B2B Embedded Lending.
The arrival and mass acceptance of BNPL for consumers completely revolutionized consumer expectations for immediate financing accessibility.
What’s happening now in the B2B market is what started five years ago in B2C – financing is becoming accessible, immediate and embedded at the point of sale. The loan programs are essentially the same, what has changed is how they are packaged and delivered to end-users.
What is B2B Embedded Lending?
Embedded lending or BNPL, which has become the standard in consumer financing, can now be applied to its most natural use case – business financing.
With B2B embedded lending, businesses can now get easy and immediate access to the most competitive loan programs from banks and business lenders.
Embedded lending technology can support all B2B loan programs including, but not limited to:
- Deferred invoice
- Net terms (e.g. pay in 30, 60, 90 days)
- Lines of credit
- Installment loans
- Working capital
Challenges of traditional B2B financing options
- Manual and admin-intensive
- Adds friction to the buyer journey
- Slow process
- Merchant bears the financial risk
If the supplier is not able to bear the risk of net terms, the company may turn to invoice factoring, whereby the company sells the invoice to an invoice factoring provider. While this route takes the financial and admin burden off the supplier, it does have its drawbacks, including high costs and the fact that invoice factoring is not applicable to all products.
Benefits of B2B Embedded Lending
- Data-rich: merchant gains access to valuable buyer data
- Automated process
- Seamless user journey
- Instant decisioning and fund disbursement
- Merchant doesn’t bear the financial risk
- No admin burden for the merchant
- Merchant gets payment upfront
- Financing options for segments that don’t qualify for invoice factoring
- Competitive rates and loan terms available from banks
- Boosts AOV and sales through promotional widgets embedded within the buyer journey
- Increases customer loyalty through white-labeled customer experience and optimized approval rates
Is B2B Embedded Lending just a B2C retrofit?
Business-to-consumer (B2C) embedded lending solutions cannot simply be repackaged for business financing. They are two very different species.
The underwriting is not the same and lenders consider different factors during their risk assessment, including the business’s financial health, position in the market, bank balance, and so on.
Businesses also have completely different risk profiles and financing needs and therefore require specialized financing solutions.
What is identical, however, is the buyer’s desire for accessibility.
At the end of the day, business buyers are also consumers who shop in their personal capacity and now, naturally, expect the same level of financing accessibility in their professional capacity.
How can banks become B2B Embedded Lending trailblazers?
Banks have all the right ingredients to trailblaze embedded B2B financing – strong foundations and balance sheets, unparalleled underwriting capabilities and loan programs with the most competitive terms.
With the right technology tools under their belt, banks can digitize their B2B financing and embed it at any point of sale.
Download our B2B embedded lending guide for actionable advice on how to transform manual B2B credit options into a seamless user experience that converts.
Disclaimer: The information in this article is for informational purposes only, and should not be construed or relied upon as legal advice on any subject matter. The author is not responsible for any consequences whatsoever arising from the use of such information.