The Difference between Buy Now, Pay Later and Credit Management

B2B payments have rapidly transformed over the last few years. In the process there have been new categories created in this space and it has become rather confusing as to what they do and their purpose and benefits.

The two largest areas of focus are credit management and Buy Now Pay Later B2B options. This article elucidates the differences and benefits of these options. 

Credit Management Programs

Credit management is the process of outsourcing your net terms program. Benefits of these platforms include improved working capital, reduced labor costs, and mitigate payment risk. 

Credit management platforms typically offer only net 30, 60, and 90 day net terms. These programs help dramatically in speed of approvals in comparison to in-house offers and can be integrated with e-commerce platforms but are largely used to outsource a company’s current client base.

While these Credit Management software options do reduce resources needed to manage a net terms program for your business buyers they rarely increase sales. This is because the process of extending credit (net terms of 30, 60, or 90 days) is common practice and most businesses do not change their buying habits because it is offered. The businesses that would see the largest impact in sales would be companies that are currently not offering a net terms program to their business buyers as a net terms program does typically encourage larger orders than a Credit or Debit card purchase.

If your business is considering a credit management program, here are a couple questions to ask yourself:

1. Are my customers currently asking for net terms?
2. Will managing a credit program in-house worth the expense of internal resources and working capital? (resources include: credit management software, employees, credit insurance, collection agencies, invoicing software, etc.)
3. Will the process in which businesses apply for a net terms program efficient? (the credit application, time for approval, etc.)

Buy Now Pay Later Solutions

Buy Now Pay Later (BNPL) solutions are longer term than a credit program extending out to as long as 12 months. This payment option was made popular in the consumer payments space with brands like (Klarna, Affirm, AfterPay, etc) but has recently moved into the B2B space with Credit Key.

In a buy now pay later solution, borrowers typically make more than one payment installation. BNPL solutions have the same benefits of credit management programs - improve working capital, reduce labor costs, and mitigate payment risk but they are commonly popular for companies looking to increase sales with their current customers or as a sales tool in customer acquisition as they increase Average Order Value (AOV), order frequency and conversion rates. 

When a Buy Now Pay Later solution is implemented into the B2B sales process it promotes larger orders due to the perceived cost of a product. In a Credit Management Program, the full cost of the product will need to be paid by the agreed upon due date in full. With a BNPL solution, companies are able to see their purchase broken down into small installments. This process allows the buyer to not jeopardize their cash flow for the purchase and therefore willing to make a larger purchase.

The businesses that typically implement a BNPL are companies that sell to small businesses as these businesses tend to pay more attention to their cash flow and may not want to dramatically decrease their working capital for a single purchase amount. Actually more than 80% of small businesses prefer terms over 60 days.

Lastly, speed is a big differentiator. While most credit management programs take a couple hours to up to 2 days - a BNPL service such as Credit Key is instantly allowing businesses to approve new buyers right from checkout or on the phone with their sales representatives

Summary

Credit Management

• Companies that are looking to extend terms without the burdens of lower working capital, having payment risk, or ongoing costs of human resources and software expenses.
• Great for small businesses that are being forced to issue terms to large entities with large orders.
• Excellent option for businesses that do not extend terms but have been asked by their customers for them.
• Good option for businesses that reorder a similar product month over month.

Buy Now Pay Later

• Companies that are looking to actively grow their sales in Average Order Value, order frequency, and conversion rates
• Great for businesses that sell to small businesses and typically sell more expensive items. 
• A needed option for companies that have a lot of competition or sell a commodity
• For businesses that are looking to mitigate payment risk and increase working capital without additional resources.