As the saying goes, “Cash is King.” But it’s also true that every great king has an even greater queen. In B2B e-commerce, data holds this regal position, and for good reason.
With trade credit being the preferred way to pay, B2B businesses needed a way to evaluate buyers, ushering in data-backed trade credit decisions.
The trend is taking off as more B2B companies wake up to the value of data in B2B payments. In 2020, the number of credit reports extracted by businesses to review customers' creditworthiness increased by 89%. Also, time spent on credit reviews for new accounts increased fourfold.
The current default for most merchants is to trust their buyers based on their existing data. But there are a few challenges, like how can merchants evaluate future B2B buyers that don’t have a credit history? And how do B2B businesses deal with industry or economic changes? In this article, we’ll deep dive into problems businesses encounter when making credit evaluations for B2B payments, and ways to tackle them.
The data dilemma in B2B credit assessments
While many B2B transactions close without a glitch, some are far from fairytales. Every seasoned B2B merchant can tell you about a nightmare sale they’ve endured. In the UK alone, 60% of merchants reported it’s taking longer for buyers to pay their invoices in full, compared to a year ago, and SMEs are waiting on average for £68,413 in unpaid invoices.
Often, the payment horror story is an expensive lesson learned that leaves merchants wishing, “If only we had evaluated the buyer prior to providing them with our services.” I have heard this statement far too often, to which I respond: “Did you assess the buyer based on their data or purely on your business relationship with him?”.
You'd be forgiven if your response to this question is the latter option. Making the correct assessment in trade credit applications is a difficult task. Most businesses only have access to the data that is publicly available, like insights from the Chamber of Commerce or through a credit bureau. However, submitting data to the Chamber of Commerce is optional in most countries.
The imperfections in data don’t end here. While 80% of the businesses purchasing online are small and medium enterprises (SMEs), and 80% of B2B transactions are expected to be online by 2025, many SMEs don’t have much (if any) financial data available.
Take the SMEs' credit scores, for example, or should I say the lack of. Companies and financial institutions frown upon negative and or low credit scores. Yet building a track record is a marathon, and every startup will have a negative credit score (or 0.00) from the moment they start. So any external company that runs a credit check on a newly established business will get a negative score on that specific business. The problem is these results don’t tell the whole story, as having a negative credit score doesn’t mean your business is struggling financially.
Historical data from previous transactions will help your business establish trust with suppliers and provide insight into your payment behavior. However, while a dispute with a different supplier shouldn’t influence your relationship with future suppliers, it does in real-time assessments. So to business buyers, I say,” Building trust takes time, start small and increase your credit score over time.”
As for merchants, I try to remind them that providing flexibility to buyers is a value add for their company, but it needs to be done with the right value. Giving a buyer an unlimited credit limit is a no-go, even if the buyer has a long-term relationship with them as a supplier. While it is possible to build trust at first order, the risk of unlimited credit limit from the beginning is simply too large. So B2B merchants, always back your credit limit decisions with accurate buyer data.
There are rocks and gold nuggets in your data pile, how to spot the difference?
Most companies fall under a group structure also known as a holding company structure, and commonly, the business making the purchase isn’t credit-positive.
So assessing the entire group and its risk gives a better overview of its financial health and understanding of how it operates.
Another critical thing to note is that raw data tells you nothing. You need to put the data insights to work. Look at it this way; A single transaction or invoice won’t tell you much about a buyer's financial and or operational behavior, even when that single buyer is starting to generate more data.
You’d need to put that data to work by assessing “gold nugget” segments like:
Payment behavior and transaction size
The amount spent over a specific period of time
Payment method(s) used
Daily Sales Outstanding (DSO)
Industry and country exposure
These insights reveal the buyer's relationship with the supplier, and combining them creates a clear buyer risk profile. As the buyer demonstrates good buying behavior, like on-time repayments in full, the buyer increases their trust and, over time, can increase their credit limit or net payment terms.
How Sprinque delivers a gold standard B2B checkout process
With all the benefits up for the taking, the question becomes, “How can B2B merchants leverage real-time credit assessments on trade credit requests to reduce risk and improve buyer experience?”. It all starts with implementing a B2B payment solution like Sprinque.
We provide a B2B checkout solution that automates buyer credit assessments, decreases operational overhead, polishes the B2B buying experience, and increases business growth. Here are a few details on how Sprinque helps B2B merchants deliver a world-class checkout experience:
Real-time credit, risk, and fraud assessments: By assessing the buyer’s data and making fraud checks live, Sprinque can provide business buyers with credit limits and net terms that are tailor-made for each purpose and merchant.
High credit approval rates: Understanding the acceptance rate conundrum, our acceptance rate is 97% on all business transactions. This proactive approach decreases fraud and allows for a better user experience.
Revolving credit limits: Sprinque allocates revolving credit limits meaning a buyer can purchase within the limit or make multiple smaller purchases. Once the buyer pays the bill, the credit limit becomes available again.
Streamlined checkout optimized for conversions: Sprinque is all about providing the best customer buying experience from start to finish, whether this is online or offline. For example, you can offer payment terms B2B buyers actually want (e.g., net 7, 15, 30, 45, 60, or 90 days), enable one-click purchasing, and allow buyers to choose their payment method.
Automate credit assessments for B2B commerce success
When using B2B payment data in trade credit decisions, it’s winners all around. Merchants benefit from the increased conversions, and business buyers gain from the advanced payment flexibility. But it’s important to remember that while data points are valuable, they're not created equal.
You’ll need to extract the “golden data nuggets” efficiently. The best way is through automation. From checkout to buyer credit analysis and fraud assessments, Sprinque automates decision-making to remove manual handling, which delays the sales process and creates extra work.
Our proactive approach ensures the right amount of trade credit for each business customer. It also keeps us on the same page as our customers; and merchants, reducing their risk and increasing their money-making potential.
So if you’re ready to upgrade your business results through a world-class checkout experience, get in touch. Our expert team will talk you through your next steps for success. Book a meeting today to discover our solution.