Protecting against risk with an end-to-end digital trade credit solution
The risk mitigation and management element of a digital trade credit solution is important to B2B sellers. Without a team dedicated to credit and fraud risk management, offering payment terms can put your business at risk.
As part of a series of 6 webinars that focuses on the core elements of an end-to-end digital trade credit solution, Lucy Heavens, VP of Marketing at Hokodo, and Richard Thornton, Co-CEO and Co-Founder of Hokodo, sat down to discuss the topic of protecting merchants against risk. The team’s in-depth conversation provided expert insights that we have summarised for your convenience.
The risks of trade credit
“I read an article recently by Barclays that said that three in five small to medium enterprises across the UK are currently waiting on late payments from their customers,” says Lucy, providing context for the need for risk protection.
During the webinar, we learned that there are several risks associated with offering payment terms, but the three main risks are:
Buyers becoming insolvent
Buyers that are unwilling to pay
Each of these risks can lead to late payment or no payment at all, causing significant cash flow issues and even insolvency for some merchants.
Protecting against trade credit risks without Hokodo
Lucy and Richard discussed the fact that merchants will often manage these risks internally, without a service like Hokodo. Whilst it is possible to do so, it does not always fit seamlessly into the trade credit management process.
Sometimes merchants use trade credit insurers to protect against non-payments, but these are typically not digital-first solutions, which can cause issues for sellers and buyers. Specifically, it can create a lot of back and forth between the merchant and the buyer, resulting in a poor experience and higher churn.
Protecting against trade credit risks with Hokodo
Hokodo has a unique approach to managing these risks. All buyers must first be approved before a transaction is confirmed. We conduct a rigorous credit and fraud risk check to determine the likelihood that a buyer will pay for their order – but don’t worry, this all happens instantly so the buyer experience isn’t disrupted. If a buyer shows up as blocked by a merchant for non-payment, or they have been blocked because they've been identified as fraudulent, the purchase is flagged and payment terms are not offered. For successful purchases, once the order is delivered, the merchants get a payout from Hokodo – which is similar to a payout from Stripe if they were processing payment by card. Then, Hokodo handles the rest.
“So, as a merchant, you know that if you sell €10,000 worth of goods today, you'll get paid €10,000 on the date that we've promised,” Richard explains.
Guaranteeing payment up front and in full is an effective way of protecting against fraudsters, buyers that are unwilling to pay and insolvent buyers. Merchants don’t need to worry about receiving a late payment and having their working capital tied up for months on end. Instead, they can focus on achieving business goals.
“What we do at Hokodo is enable merchants who have a successful business that's working well, to grow rapidly without facing those types of risks and those types of exposures,” explains Richard.
Protection for merchants entering a new market
A major consideration for merchants entering a new market in Europe is that different countries have different laws and regulations. Some regions allow for 30 day payment terms while others allow for 60 day terms, for example. Offering credit in a new region therefore carries a certain degree of risk for B2B sellers – but not with an end-to-end solution like Hokodo’s.
“At Hokodo, what we've done is make our solution pan-European. It doesn't matter where you're trading in Europe, the integration that you've done with Hokodo through one set of APIs or one plugin can then just be switched on in whatever new country you're moving into,” explains Richard.