Unpacking the complexities of trade credit payments
It’s estimated that as much as 90% of global trade between businesses is facilitated by a form of trade finance or credit. However, offering buyers the chance to pay in 30, 60 or 90 days isn’t as straightforward as it seems – especially in the context of online transactions. B2B payment flows are inherently complex, and adding a digital element can make them even more complicated.
In a recent webinar, Lucy Heavens, VP of Marketing at Hokodo, and Louis Carbonnier, our Co-founder and Co-CEO, explored the complexities of payments in trade credit and how a specialist digital solution can help buyers and sellers alike. Here are seven key learnings from the webinar.
1. Digitising trade credit means sellers get paid faster.
Typically in B2B, order values are higher and buyers tend to want payment terms. This means that sellers often have to wait 30, 60 or 90 days before they receive any payment. However, when a digital provider like Hokodo is inserted into the equation, the payment flow is modified, meaning that sellers get paid immediately, while buyers still get the credit terms they need.
“Where it becomes a bit different is that the buyer gets, for example, 60 days to pay [...] but then Hokodo will actually pay the merchant up front,” explains Louis. Hokodo then collects the payment from the buyer at the end of the agreed credit period.
Significantly, even if the customer in this scenario is unable or unwilling to pay for their order 60 days later, the merchant keeps all the money they’ve received from Hokodo.
“The whole transaction is protected by Hokodo against the risks of non-payment, which simplifies all the credit management and chasing process for the merchant,” adds Louis.
2. Marketplace payments have an added layer of complexity.
During the webinar, Lucy highlights that the amount of B2B trade happening on digital marketplaces in Europe is currently around 10% and growing fast. Although these platforms provide added value to buyers and sellers, the payment flows in the background can be particularly complex.
In the case of marketplaces, the buyer experience remains the same, but an additional step is introduced on the seller side.
“There’s one additional step that needs to take place in the context of the marketplace, which is the splits and payouts,” Louis explains. “The marketplace gets the pay-ins from Hokodo and then has to allocate funds to the various suppliers after taking its commission.”
3. Favourable payment terms and methods lead to a better buyer experience.
Merchants that offer better payment terms – for example the option to pay in 30 or 60 days – boost customer satisfaction and increase conversion rates.
“At Hokodo, we work very closely with merchants to test different payment plans, such as pay in 30 days, 30 day end of month or in three instalments, to try and find the ones that give the best value for money,” says Louis.
Similarly, the choice of settlement methods available to the end buyer is an important factor in driving conversion rates and improving the customer experience. Settlement methods include credit cards, direct debit and bank transfers, but the nature and value of B2B transactions means that cards are often not an ideal way to pay.
“At Hokodo we support all those settlement methods, again with the end objective of delivering the best purchasing experience and combining the best payment plans with the most optimised settlement methods.”
4. Payments are at the core of many e-commerce strategies
For him, the bottom line is that payments are how sellers monetise, drive loyalty from customers, and ultimately capture more share of wallet.
“Payments have moved, in terms of the agenda, from the back office of the finance departments where trade credit was often relegated, to the core elements of the value proposition and of the user experience at the checkout.”
5. Handling refunds, disputes and chargebacks doesn’t have to be painful.
In the case of refunds, cancellations or returns, Hokodo provides sophisticated APIs and processes to ensure a seamless and scalable user experience.
If a customer requests a refund after making a purchase, the merchant informs Hokodo via API, and the settlement amount is adjusted accordingly so that, on the due date, the adjusted sum is collected from the buyer. If Hokodo has already paid the merchant at the time of the refund, we will simply subtract the refund value from a future payout.
“All this is managed automatically. I'd say scalability and automation is the key because we want to help merchants have a super-efficient back office,” explains Louis.
In cases of fraud such as an account takeover or other non-payment situations like chargebacks , Hokodo protects merchants by insuring the losses.
“In any case the merchant is protected by Hokodo, so there’s no clawback in the flow of funds,” adds Louis. “Say, for example, we sent £1000 to a merchant for a purchase. If there's a chargeback, the merchant still gets to keep the £1000 and Hokodo takes the loss and insures it.”
6. Outsourcing trade credit payments helps businesses to focus on their core strengths and goals.
During the webinar, Louis and Lucy highlighted the challenges that merchants and marketplaces face when trying to create trade credit payment processes in-house.
“It's really hard, when your business is dedicated to food and beverages or construction, to invest in the infrastructure for fraud detection or automated credit scoring that allows you to really get to the next level,” Louis explains.
At the end of the day, sellers want to focus on their core goals like product development or customer acquisition. Outsourcing trade credit payments to an end-to-end supplier empowers merchants to do just that, while assured that their buyers are receiving a good online experience and high acceptance rate.
7. Pay Now capabilities help sellers to streamline their checkouts.
Although the vast majority of B2B trade takes place on payment terms, there are a small number of businesses who want to pay for their purchases up front. Hokodo is unique in that it is a digital trade credit provider that is also able to process ‘Pay Now’ transactions.
“[Having the Pay Now feature] answers a question that merchants were asking us, which was, ‘Hey, we really like Hokodo. We love that you give payment terms to 90% of our clients. That’s the best payment method, but what do we do with the remaining 10%, the ones that are not eligible for payment terms because these companies are new, or not financially solid?’”
Bringing all payments under one provider minimises the number of integrations and administrative work that a seller has to do and creates a modern, streamlined experience for buyers. It can also open doors in terms of serving buyers who want to place an order that exceeds their credit limit, by processing a small part of the payment up front and the rest at the end of the payment term.
Throughout this webinar, Louis and Lucy shed light on the importance of payments in trade credit and the complexities involved in managing the payment flow. By leveraging B2B Buy Now, Pay Later providers like Hokodo, merchants and marketplaces can streamline the trade credit process, offer flexible payment terms and protect themselves against non-payment risks. As the B2B landscape becomes increasingly digital, optimising payment methods and user experiences becomes even more crucial for driving customer satisfaction and conversion rates.
If you missed it, you can watch the replay of the webinar below.