Make Customers a Business Credit Offer they Can’t Refuse | Behalf
Make Customers a Business Credit Offer they Can’t Refuse
There’s a trend that’s taking the modern digital marketplace by storm – customer financing. In recent years, e-commerce platforms like Amazon and Ebay started to extend financing to their best re-sellers, helping them fund their inventory buys. With all of the banks and lenders on the market, many questioned why ecommerce sites would bother venturing into uncharted financial territory. The answer is simple – opportunity. Businesses are hungry for affordable, easy to access business credit. Small businesses are more vulnerable to dips in revenue than their larger counterparts and lack of access to credit can hamstring their growth. With limited options, small businesses often choose their partners and vendors based on the payment terms they offer – taking full advantage of extended or flexible payment terms as a cash flow solution. In fact, over 90% of B2B companies rely on trade credit as their largest source of capital, because it’s free and offers day-to-day flexibility in cash outflows.
Although most B2B companies offer some type of trade terms on a case-by-case basis, many haven’t explored all of the types of customer financing available. In most cases, they’re scared off by the price tag expected to be attached to a financing service. Even large companies – despite Amazon’s trailblazing example – are shy to explore any payment options that cut into their margins. Nevertheless, all business to business sellers are eventually compelled to step-up with flexible payment terms by their customers. They experience friction daily, with each new customer attempting to negotiate special terms, and receive ongoing threats of attrition from best customers looking for more advantageous terms. In order to keep up with the competition, businesses need to deliver best-in-class payment terms to their business customers.
The thing about offering terms is that your business customers will take full advantage, maxing their payment timeline to the limit. The result? This creates the reverse cash flow issue: business sellers can end up insolvent with DSOs out of control. Between a rock and a hard place, these larger companies may turn to factors and other financial institutions to seek a capital advance. Though convenient, factoring fees are unreasonably high and can cut into profits as much as 20%. Herein lies the problem with factoring to relieve the cash flow strain caused by trade credit – it’s only a partial fix. Factoring satisfies a company’s immediate need for cash but at such a high cost that it’s counterproductive.
Let’s take a step back and look at the real issue – business customers want more time to pay, but not all B2B sellers can afford to wait. Albert Palacci, the CEO of 888 Lots, found himself in a similar predicament, but quickly and affordably found a way out. Here’s how:
Albert says, “I realized that there was a 4-6 week window between when my customers needed to pay me for their products and supply chain services, and when they collected their receivables for goods sold to consumers. This cash flow gap was a serious hardship for them and it prevented them from scaling their businesses.” In October 2015, Albert introduced an innovative payment solution that alleviated his customers’ cash flow gap – Behalf. By providing them instant credit, Behalf enabled 888 Lots customers to extend payment on individual purchases and send instant e-payments. He continues, “When my customers received the ability to customize their own payment plan and take up to six months to pay, my sales immediately increased.” Flexible business credit is a win-win for 888 Lots because it receives instant payment, while customers get the flexibility they need to run their business on their terms.
In Albert’s case, he did not have to trade-off his own cash flow to offer better terms to his customers. He says, “Offering a line of credit gives me a competitive advantage that has become part of our core value proposition. I have even started to offer incentives to my customers for switching their payment method from cash to Behalf. Customers that pay with Behalf have an average order size around 35% higher and repeat around 80% more than customers who pay cash, so the business case is there for me.”
Amazon is no longer the only company with business credit tricks up their sleeve. The FinTech industry has risen to make comprehensive and affordable customer financing a reality for companies big and small. 888 Lots is an example of the profound success SMBs have when they expand their business credit offering with payment technology. The Future of FinTech: A Paradigm Shift in Small Business Finance report concludes that online payment services strengthen supplier relationships “because the suppliers no longer have to work with a separate receivables factoring firm.” Albert used Behalf’s payment service to optimize his payment experience and drive up sales. In short, your company doesn’t need an Amazon budget to offer customer financing, it just needs payment innovation.