Hokodo's 2023 predictions: Trade credit will go unstoppably digital

Today, SMEs make up 95% of all businesses globally. Between them, they employ between 60% and 70% of the world’s workers. SMEs are truly the backbone of our economy, and the way that they interact with each other affects all of us. The delicate web of businesses supplying other businesses with materials and services, weeks, or months before getting paid is known as trade credit. More than 50% of all business deals are carried out in this way.

For 2023, my prediction is that trade credit will get a serious digital makeover. And the ripple effect will be significant – especially for SMEs.

1 | B2B e-commerce will enter a new digital era

For years, B2B online shop fronts were due a transformation. Compared to their consumer-facing counterparts, the majority of B2B consumer journeys seemed more than a little outdated.

However, recently we’ve noticed some B2B e-commerce platforms surging ahead into the future. Among these are primarily industry-focused marketplaces and merchants specialising in specific goods such as grain or homeware, or services like freight forwarding. 

Customers appear to be appreciating this specialist angle. In 2021, B2B digital marketplace transactions shot up by 131% – bringing in $56.5 billion. Our own clients have reported incredible growth of +100%, +200% and even +300% over the past twelve months. 

I’d expect this digital trend to continue and rally in 2023, as more B2B companies create stronger digital journeys. Along with this we’re likely to see a boost in convenient financing options like digital trade credit and BNPL arriving at B2B online checkouts too.

2 | A surge of micro and small businesses are on the way

It’s never been so easy to set up a small business. With so many Software-as-a-Service (SaaS) options available, entrepreneurs can set up shop online and get going in a matter of minutes. The likes of Shopify, Xero and Hokodo have made it infinitely easier for emerging businesses owners.

In 2021, the number of people starting a business hit a record high in the UK. Against a backdrop of Brexit, the pandemic and austerity measures, this demonstrates the impact of SaaS technology on entrepreneurial mobility.

Interestingly, data shows that micro business owners such as gig workers are generally happier people, suggesting that the trend will stick. After all, why go back to something that makes you less happy?

In the aftermath of the pandemic, we’re likely to see many more people come forward, either launching a full-time business or as a side hustle. Thus, we expect a bounce back in the number of SMEs. This will be partly generated by entrepreneurs who went bust during the pandemic having another go at it, and partly from new entrepreneurs looking to take advantage of a post-pandemic world.

Effortless trade credit will water these seedling companies, helping them to grow and flourish despite having limited capital to fund growth over the coming years.

3 | BNPL for business gathers momentum

Who hasn’t heard of BNPL? It’s been the white-hot trend of the past 24 months. 12% of Brits today already use these services in their private lives – and some of these will of course be business owners. It was just a matter of time before businesses began to use B2B BNPL. After all, the global business payments market is worth $125 trillion.

As B2B BNPL becomes more commonplace, demand will grow too. The waves of tech- hungry young Millennials and Gen-Zs rising through the workforce will expect it. Already today, 73% of B2B buyers admit to abandoning purchases if they experience any friction. And a compelling 91% say that they wouldn’t bother with a B2B provider if digital payments and finance at the checkout weren’t an option.

4 | Digital trade credit will empower smaller companies

Of course, buying now and paying later is nothing new for purchasing giants like Tesco, Waitrose or Sainsbury’s. They usually benefit from generous payment terms of 30, 60 or 90 days, as well as rock-bottom interest rates. Sadly, the same can’t be said for SMEs.

Today, SMEs aren’t getting credit from suppliers, so they must borrow in order to finance their own working capital, meaning they’re the ones paying high interest rates. Solutions like digital trade credit and B2B BNPL level that playing field.

B2B buyers are able to defer payments, without causing any cash flow problems for the merchants. With a healthy cash flow, smaller companies become more competitive. They can expand their operations, boost their marketing, or explore new niches, without being restricted by constrained cash flow.

5 | A spotlight on Europe’s buzzing B2B market

Digital trade credit will bolster companies all over the world. But for 2023, it will shine particularly bright in the European markets. Within this region – which here includes the United Kingdom – B2B e-commerce is expected to explode by 21.5% CAGR until 2030.

European businesses are investing heavily in digital sales channels. As of Spring 2022, 83% of the region’s B2B manufacturers were planning to increase their digital budgets, with many aiming to become “market leaders through digitalisation”. The most popular tools and integrations these firms are investing in include customer data platforms, digital marketing tools, Electronic Data Interchange (EDI), Product Information Management (PIM) and Artificial intelligence (AI) among others. Everything is becoming centred around the online customer journey. 

Within the UK, there is also a strong demand to make trade credit more accessible to overseas buyers. 70% of UK SMEs have plans to export their goods in 2023. But while technology may be seamless, the conditions are anything but. The percentage of SME exporters reporting increased export sales dropped from 26% in Q2 to 22% in Q3 of 2022. Experts point to the difficult post-Brexit trading conditions, alongside the rising cost of goods and labour. UK SMEs looking to export may need to work extra hard to get around the red tape, but fortunately, there is a growing range of tools which can help them with the complexities of cross-border trade such as customs declarations, logistics and trade finance.

Are you ready?

Business trade is heading in a digital direction at an unstoppable pace. B2B platforms have a clear choice now – either to join the movement or get left behind. For those that embrace and implement solutions like digital trade creditor B2B BNPL, there are huge rewards for the taking. Those that dither will see their market share attacked by nimbler digital competitors.

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