Finding the win-win in B2B trade credit
The practice of B2B suppliers of selling to their customers on credit is as old as the business itself, but it is not without its flaws. With some sectors like the clothing industry demanding longer payment terms, suppliers are forced to find a way to stay afloat while cash flow is hampered.
One of the biggest frustrations with the B2B trade credit model today is that buyers and suppliers can often struggle to align the payment schedule with their own working capital goals and the timing of their own credit cycles. Treasury.
Brad Prout, CEO of Australia-based Finstro, recently told PYMNTS that the trade credit model can create problems for both buyer and supplier when not strategically managed. As Finstro prepares for its U.S. debut, Prout described how to inject technology into legacy trade credit workflows to find win-win scenarios in the accounts receivable and accounts payable departments.
Inadequate working capital
While trade credit selling is designed to meet the cash flow needs of the B2B buyer, the customer can often experience significant friction in their own buy-to-pay processes.
The process of setting up a credit account with a vendor can in itself be a headache, often taking days of a paper-intensive workload. With the customer experience becoming more and more important in B2B commerce, this manual experience is no longer enough for many B2B buyers.
Yet even after opening a credit account, buyers can still face friction in the form of lumpy cash flow.
âIt’s very common for a vendor to offer 30 days net to their customer, but that customer may actually have a 90-day or 100-day inventory or revenue cycle,â Prout explained. âThere is an inherent working capital mismatch in this relationship. “
On the supplier side, there are also a lot of problems.
In particular, there is the practice of large companies requiring long payment terms in order to remedy this working capital mismatch. For many vendors, especially small businesses, making sure the large business customer is satisfied is the key to staying profitable, even when it means months of delays in receiving payment or absorbing all of a sudden. financial prepayment rebate programs.
But it is this focus on the customer experience that can be a real brake on sales.
âOnce I run out of supplier A’s credit, I’ll use my credit that I have with supplier B,â Prout said, noting that if Supplier B has a better trade credit experience, he’s likely to get more sales and a deeper customer relationship.
Today, the practice of extending trade credit to customers is not just an expectation in B2B commerce, it is a competitive advantage for vendors who can provide the most seamless experience.
Stimulate the digitization of B2B commerce
Unsurprisingly, Prout noted that digitizing and automating trade credit workflows is key to delivering a better shopping experience and helping suppliers stay competitive. But in the United States, especially compared to Australia, the lack of digitalization of B2B payments often makes the workflows of establishing and managing commercial credit accounts even more complicated.
Prout pointed out that Australia’s more concentrated financial services and banking landscape compared to the fragmented US ecosystem was a key factor that has enabled businesses to modernize payment and management workflows more effectively. B2B financial, such as accounts payable and accounts receivable. But now, he said, the United States is on the verge of a change.
âWe strongly believe that the United States is on the verge of mass adoption of digital payments,â he said. While there are many factors that have held back the US market, from reliance on existing ERP systems to the high cost of card acceptance, “A lot of these barriers are being phased out,” he said. he declares. “We are definitely on the cusp of a rapid change in the way B2B commerce is affected in this country.”
Enabling trade credit management that resolves friction for both buyer and supplier and integrates seamlessly into existing back office infrastructure is critical to improving workflows without causing disruption. Reaching out to each party means enabling suppliers to extend credit to customers more transparently while providing buyers with more efficient payment options and identifying how to align payment terms with each party’s cash flow needs.
As Finstro prepares for its launch in the United States, it will work with the Visa Fintech Fast Track program. Modernization of B2B payments playing an increasingly important role not only in the efficiency of the back office, but also in the optimization of working capital, the alignment of trade credit practices with the cash flow needs of buyers and suppliers could ultimately help companies strengthen their B2B relationships while digitizing their own operations.
“If we are able to provide solutions to both the supplier and the buyer to better align these working capital cycles, and if we do so in a way that is transparent for the supplier to integrate into their systems.” business and practical for their business customers, then I think we can help solve a fundamentally important problem that exists in the market, âsaid Prout.