If you’re looking to offer more flexible and innovative payment options to your B2B customers, embedded lending has some significant advantages.
B2B buyers are increasingly showing a preference for eCommerce-style shopping. As the buy now pay later (BNPL) payment trend continues to grow, many merchants are realizing how embedded lending can be a game-changer for their business.
With more flexible lending terms, they can increase customer satisfaction and loyalty, streamline the borrowing and purchasing process, improve cash flow, and drive more revenue.
In this article, we’re looking at the key benefits of embedded lending for your business and customers, plus some common challenges you might face if you don’t choose a good payments technology partner.
What is embedded lending?
Embedded lending (also known as embedded financing) is a financial service that allows your business to offer credit terms and financing options natively from within your existing website platform and across other sales channels, including in-store.
Traditional B2B lending solutions require your customers to go through a time-consuming application and approval process, which can be frustrating for everyone.
Embedded lending removes those roadblocks by integrating everything together seamlessly at the point of sale — making each B2B transaction as simple as swiping a credit card.
Your customers can get immediate access to credit whenever they want to make purchases, which is particularly useful if they’re looking for better ways to manage their cash flow. They can also choose the net payment terms that best fit their business, which might be anywhere from 30 days to 12 months depending on your B2B payments provider.
Why embedded lending is trending as a B2B payment solution
Since COVID, making purchases from a laptop or mobile device has become a fairly routine part of our daily lives. Technology companies have responded by creating new methods of online payment like buy now pay later (BNPL), which is now considered to be one of the main challengers to traditional credit card payments.
BNPL transactions drove $940 million in online spending on Cyber Monday 2023 alone, a huge 42.5% YoY increase that shows the growing demand for more flexible payment arrangements. And this isn’t limited to the B2C sector.
Globally, the embedded finance market is predicted to reach US$385 billion by 2029, growing at an annual rate of 30%.
As embedded lending soars in popularity, it’s important to understand why your B2B customers prefer this type of payment — and how you can best position your business to take advantage of this shift in buyer behavior.
Read more: How Flexible Payment Solutions Empower B2B Merchants and Buyers
Benefits of embedded lending for merchants
Embedded lending is an attractive solution for a wide range of B2B merchants, and it can be implemented in virtually any industry.
Whether you’re in manufacturing, retail, technology, healthcare, or any other sector, you can integrate the technology across your sales channels to provide your customers with modern, flexible financing.
Here are some of the key benefits for merchants:
Seamless integration
A good technology provider will be able to smoothly integrate their embedded financing software into your existing systems (such as your eCommerce website, in-store systems, and invoicing platform) in a way that doesn’t negatively impact your daily operations.
Rapid approvals
With advanced data and analytics, credit decisions can be made for your customers in minutes instead of days, improving customer satisfaction levels and helping to drive growth for your business.
Flexible financing
It’s much easier to meet the specific financing needs of your B2B customers. While some customers are completely happy with standard net 30 or net 90 day payment terms, other customers might get incredibly excited about the prospect of being able to pay off their purchases over 12 months.
New revenue streams
Adding embedded lending can help you attract a broader range of customers, including smaller businesses who might not have huge cash flow, but have great potential for high future sales as their business grows.
This can open up new revenue opportunities and markets that might be inaccessible with your current B2B lending solution.
Increased customer loyalty
Competition is fierce in every industry, and if you’re not offering the lending solutions that your customers want, it’s all too easy for them to spend money with your competitors instead. Many customers will choose to trade with a company that offers embedded lending over one that involves a complicated lending process and stacks of paperwork.
By providing new, flexible financing options at the point of sale, it’s easier for your customers to make larger purchases and buy more often. This not only boosts your revenue, but customers will appreciate how convenient it is to do business with you, and they’ll keep coming back for more.
Improved cash flow
Cash flow is the life blood of your business, and compared to traditional lending solutions, embedded financing can make everything flow much more smoothly. A good payments provider will enable you to access funds quickly, eliminating the lengthy delays involved with traditional loans.
You’ll be able to manage operational expenses and inventory more efficiently, minimize payment risk, and improve your overall financial stability.
Benefits of embedded lending for B2B customers
On the flip side, your B2B customers will also benefit in a big way from using your new embedded financing system.
They’ll enjoy a lightning-fast time to approval, and the convenience of getting immediate financing right at the point of sale on any of your sales channels. Plus, they’re likely to be comfortable with using similar B2C payment systems for personal purchases.
Cash flow is a genuine concern for every business, and embedded lending can take a lot of this stress away for your buyers.
Standard credit options tend to have rigid repayment schedules, and can lead to high-interest debt. In contrast, embedded lending can offer flexible and extended terms, manageable repayments, and lower interest rates than traditional loans.
Overall, this means smoother cash flow and less financial risks — making it a win-win situation for you and your B2B buyers.
Does embedded lending pose any risks to merchants or customers?
Now we’ve touched on all the amazing things that embedded lending can do for your business and your customers, it’s important to consider the risks.
Even though the benefits far outweigh any risks, it’s good to keep the below factors in mind when you’re choosing an embedded financing provider.
Risks to merchants
- Compliance: To avoid fines or legal issues further down the track, you’ll need to make sure you keep compliant with all relevant financial regulations and consumer protection laws, as well as local, state, and federal laws.
- Operational downtime: Tech glitches, human error, and third-party provider problems can all disrupt your payments. This can cause havoc with cash flow, decrease brand trust, and cause your customers to look elsewhere. It’s critical that any embedded lending solution you integrate with has reliable technology.
- Negative brand experience: As above, choosing the wrong B2B payments provider can potentially damage your brand and customer relationships. Complaints about glitches, high interest rates, poor customer support, and hidden fees can easily lead to negative reviews.
- Cash flow: If your embedded lending partner doesn’t promptly disburse your payment funds, or if there are high levels of customer defaults, this can affect your financial stability. Look for providers that undertake to pay you promptly (hint: Credit Key always pays merchants within 48 hours!)
- Security: It goes without saying that any technology partner you work with needs to have the highest possible level of security and privacy infrastructure to prevent data breaches and ensure your customer data stays safe.
Risks to customers
Customers love the ease and speed of using embedded lending, but it’s important that you make them aware of the potential downsides for their business too. Here are a few examples:
- High fees and interest rates: Depending on the B2B payments provider, using this type of BNPL option can incur higher fees than traditional loans or credit cards.
Many business owners might not fully understand what the total cost of their purchases will be. Terms and conditions around embedded financing are often not clearly communicated by merchants, leading to misunderstandings about things like interest free periods, repayment schedules, interest rates, and net terms. - Overspending: We all know how tempting it is to splurge and max out our credit card! Embedded lending is much the same. Because it offers such fast and easy access to credit, it can be tempting for customers to make impulse purchases and over-borrow.
This can result in high levels of debt that might be difficult to manage and repay. It also goes hand-in-hand with spiraling fees, which can cause significant financial stress or (as a worst case scenario) bankruptcy.
Missing scheduled payments can also negatively impact a customer’s credit score, making it harder for them to borrow in the future. - Security: Customers are familiar enough with BNPL solutions that they probably won’t think twice about using this option when they visit your website. But some buyers will need extra reassurance that your embedded lending solution has robust security measures in place.
Your buyers will want to know you’re protecting them from identity theft and financial fraud, as well as communicating how the data they share with you will be used and stored.
Tips for choosing a good embedded lending provider
Now that we’ve weighed up the benefits of embedded lending for you and your customers, let’s take a look at some tips for success when you’re ready to implement.
Not all embedded financing solutions are created equal. When you’re choosing your new tech partner, it’s important to do your due diligence around things like:
- Do they offer flexible payment terms that suit all of your customer segments from SMBs to enterprise?
- How fast will they pay out your funds?
- Can they easily integrate with your existing technology?
- How difficult will it be to move from your legacy/offline payment solution to this new ecommerce solution?
- Will your specific customers be responsive to this new way to pay?
- Will setup and launch be taken care of for you, or will it cause a strain on your time and resources?
- Will you keep compliant with all necessary regulations for your industry and country?
- What levels of data security and privacy do they have in place?
And most importantly - how fast will you see ROI after launch!
These are some of the most common things we get asked by merchants who are looking around for an embedded lending provider. If these questions are top of mind for your business, you’re not alone.
Make sure you cover all of these points in your initial discussions with any prospective provider when you’re discussing embedded lending — so you can partner with them confidently, and take your business to new heights.
Wrapping up
The widespread adoption of embedded lending is causing a shift in how B2B financial services are delivered. Merchants can now easily offer flexible financial services to their customers on the spot, without sending eager buyers away from their website and other sales channels to get credit.
Customers in turn are demanding fast, seamless ways to borrow online that won’t impact their cash flow, and can help them drive positive growth. Embedded lending ticks all of these boxes.
Credit Key’s simplified application process, built-in risk management, and flexible payment terms up to 12 months make it an ideal embedded lending solution for both your business, and your borrowers. Interested in learning how our solutions can help improve cash flow and drive revenue? Request a demo or contact our friendly team today to learn more about how we can help your business grow.
Topics from this blog: B2B Payments Finance