How to handle payment terms on your B2B marketplace

Hokodo

Handling payment terms effectively is crucial for the success of any B2B marketplace. Proper management of trade credit impacts cash flow, not just for you but also for the buyers and sellers operating on your platform. Executed effectively, payment terms can forge trust with your customers, enhance the user experience, enable you to pay sellers promptly and give your marketplace an edge in an increasingly competitive market. But executed poorly… let’s not even go there.

If you’re asking “should my marketplace offer payment terms?” then you need to reframe your thinking. 83% of B2B buyers say they will abandon an e-commerce marketplace purchase if suitable payment terms aren’t available at the checkout. It’s not a question of whether you should, it’s a question of how you must. 

As part of our Ultimate B2B Marketplaces Knowledge Hub, this guide provides strategies and advice to ensure your marketplace can offer payment terms that are fast, simple and effective for you, your buyers and your sellers.

What type of payment terms should you offer?

86% of buyers agree that payment terms are an important consideration when choosing a vendor or supplier – but what kind of payment terms do they want?

When it comes to deciding how to handle payment terms on your marketplace, you must first consider the types of credit that are desired and expected in your industry:

  • What do your buyers want to see at the checkout?
  • What do they already get from your competitors?
  • What are they used to in traditional offline transactions?
  • What kind of payment terms do your sellers offer on their own e-commerce site?

In B2B, 30-day payment terms come as standard. However, advanced digital capabilities and new solution providers have made it possible to offer extended payment terms, instalment plans and more – let’s dig into the main options for your marketplace.

30, 60 and 90 day terms

Offering 30, 60 or 90 day payment terms enables buyers to pay within a specified period after receiving the invoice and goods or service. This practice is common in B2B transactions and many buyers expect it as standard., but it can also help attract new buyers who need time to start making profit before paying for their order.

Instalment payments

For higher order value purchases, you could consider offering instalment payment plans. These allow buyers to pay in several equal parts over a defined period, easing the financial burden and making large transactions more feasible.

Trade accounts

Trade accounts (sometimes referred to as billing accounts) allow buyers to make several purchases through a specified period (often a month) and then receive one consolidated invoice to be paid on an agreed date. Trade accounts are an effective way of simplifying payment terms for buyers and sellers alike. Although traditionally popular in sectors such as food and beverages, construction and automotive, 81% of all B2B buyers say they would open a trade account with their main supplier(s) if offered.

Different businesses have different cash flow cycles and financial constraints, so providing various relevant payment terms options is key for attracting and retaining a broad set of buyers.

What else do you need to consider?

In an ideal world, handling payment terms would be as simple as finding out what your buyers want and giving it to them. But we don’t live in an ideal world. That’s why whenever you drop toast, it lands butter-side down. And why you inexplicably get your pocket caught on the door handle sometimes. Annoying, right?

In the imperfect world we live in, there are a few more things to consider…

Credit management

Effective credit management is crucial to mitigate the risk of non-payment and maintain a healthy cash flow when offering payment terms on your marketplace. Here’s what you can (read: must) be doing to keep your payment terms offering safe, secure and successful:

  • Credit checks: It’s a no-brainer, but you’ve got to perform credit checks on all new buyers to assess their creditworthiness. This helps you to identify potential risks, weed out the fraudsters and make informed decisions about extending credit.
  • Credit limits: Then, you'll need to set, monitor and adjust a credit limit for each buyer based on their credit history and payment behaviour. This prevents overextension and ensures that buyers do not accumulate debts that they are unable to pay.
  • Instant credit decisions: It’s not easy to offer instant credit decisions without the help of a payments partner, but the faster you can return a decision to your buyer, the more likely you are to convert the purchase. 83% of buyers expect credit decisions to happen in less than a day, including 22% that expect a sub-hour decision and 19% that expect to know instantly.
  • Credit insurance: You could consider using trade credit insurance to protect against non-payment. This insurance covers the risk of non-payment due to buyer insolvency or other financial issues. However, the cost, cash flow impact and administrative burden of credit insurance make it far from a perfect solution.

Robust payment processing

Seamless payment processing is vital for the efficient handling of payment terms. It ensures transactions are smooth, secure and convenient for both buyers and sellers. Here are four must-haves for marketplaces that want to offer payment terms.

  1. Tailored selection of settlement methods

You need to support various settlement methods, including credit cards, bank transfers, Direct Debit and digital wallets. Offering a variety of settlement options caters to different preferences and enhances the user experience, BUT (and it’s a big but) be careful not to offer too many options or methods that are irrelevant to your buyers.

  1. Automated invoicing and payment reminders

Automate the invoicing process and set up automatic reminders for upcoming and overdue payments. This reduces administrative overhead, ensures buyers are reminded of their payment obligations in a timely manner and gives them a kick up the backside if they’re late. Similarly, you can automate many of the communications you have with sellers.

  1. Safety and security

Ensure all payment transactions are secure by implementing encryption and adhering to industry standards such as PCI-DSS. Security and the protection of sensitive financial information are paramount for building and maintaining trust with both buyers and sellers.

  1. Fast payouts for sellers

One of the difficult things about being a marketplace is making payouts to sellers based on the goods they sold via your platform, but sellers expect speed and efficiency when it comes to their money. To keep them happy, you’ll need to make sure that sellers get paid the correct amount soon after a purchase is made. 

Clear and transparent policies to make things go smoothly

Clear and transparent payment policies are essential when it comes to managing expectations and preventing disputes around your marketplace’s payment terms offering. 

You’ll need a terms and conditions document that clearly outlines the payment terms and conditions on your marketplace, including due dates, penalties for late payments and the process for dispute resolution. Ensure that these terms are easily accessible and communicated to all parties involved. P.s., don’t be an idiot – get a lawyer to help you draft your T&Cs.

Communication is also key here. You must ensure that all relevant parties are fully informed about the payment terms at the beginning of the transaction. Clear communication helps in setting expectations and reducing misunderstandings about things like credit limits, due dates, payout dates and the collections process. Remember: it’s not just about the buyer, so you’ll also need to communicate important information to sellers, such as when they can expect payment or how much interest you might be taking.

Monitoring and analysis of payment data

Ongoing monitoring and analysis of payment data can provide insights into payment trends and potential issues among the buyers who use your marketplace’s payment terms offering.

Use data analytics to monitor payment trends, identify late payment patterns and assess the financial health of your marketplace. This information can inform changes to your credit offering and policy adjustments.

You can also track key performance indicators such as average payment time, percentage of overdue invoices and payment default rates, which help in assessing the effectiveness of your payment terms and identifying areas for improvement.

Responsive customer support

A knowledgeable and responsive customer support team is essential for handling any issues and queries related to payment terms. If you get a high enough volume, you should consider having a team dedicated solely to handling these requests.

And don’t forget to provide self-serve resources and training for buyers and sellers on best practices for managing payment terms and understanding credit. Educated users are more likely to comply with payment terms.

How can I offer payment terms on my marketplace?

Offering payment terms on your marketplace sounds like a lot of work, right? That’s because it is. But it is oh-so worth it. Payment terms are a facilitator for marketplace growth, attracting new customers and encouraging more frequent purchases, but they also encourage buyers and sellers to remain on your platform to continue their commercial relationship – instead of dropping off to trade privately. In essence, trade credit allows marketplaces to sidestep one of their biggest worries – disintermediation (AKA platform bypass).

So, if you’ve got the resources, time, people, tech and know-how to understand market expectations, offer instant decisions, monitor credit limits, protect against non-payment, ensure compliance, collect overdue payments, respond to customer support inquiries and everything else associated with the trade credit management process, then you might consider building a payment terms offering from scratch…

But for most marketplaces, that’s far from the ideal scenario, because:

  • It’s risky. The anonymity and scale of e-commerce marketplaces means that it can be difficult to know which buyers can be trusted to pay you back.
  • It’s complex. From credit scoring and fraud detection, through to financing, payment processing, insurance and collections, trade credit is made up of several complex components.
  • It puts pressure on cash flow. Offering credit off your own balance sheet can have a significant negative impact on the cash flow of your marketplace.

In recent years, digital trade credit solutions such as those offered by Hokodo have emerged as a safer, simpler and more sustainable way for merchants to offer payment terms. With Hokodo providing the financing and handling every step of the trade credit management process, buyers get the credit they deserve while sellers get paid upfront and in full, even if a buyer is unable or unwilling to pay. Everyone wins.

If you want to find out more, we’d love to talk to you about how Hokodo can help your marketplace reap the rewards of payment terms. Book a call today.

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