Distributor Finance 2.0: The Hottest Feature of B2B Marketplaces

B2B payments and net-term financing capabilities are a prime example of a 'timely, sexy' feature that can drastically accelerate digital growth.
The enhancements reduce up to 75% of claims-processing costs for clients using manual methods, ITA Group said.

Applico, the digital platform consultancy, continues to see record fundraising numbers for B2B marketplaces due to its high growth metrics — with $1 billion in VC investment raised in 2021 for just the Top 3 B2B marketplaces.

Applico’s ranking of the top 50 B2B marketplaces received a great deal  of interest in 2021, and our knowledge of these B2B marketplaces has revealed a key insight into one of their best “growth hacks.” But how much of that growth is due to an innovative business model versus a sexy feature that could be replicated by traditional competitors?

Through Applico’s work in B2B distribution and with marketplaces, we believe B2B payments and net-term financing capabilities are a primary example of the latter: a timely, sexy feature which can drastically accelerate digital growth.

“Buy now, pay later” has taken off like a rocket in B2C e-commerce, so it’s no surprise that a similar offering would eventually make its way to B2B. That day is now here.

These B2B marketplaces are bringing a B2C-like checkout and financing experience to B2B. This includes ease of use, instant approvals and pay-how-you-like. But we’re no longer just talking about small-dollar retail transactions, as we’ve seen with consumer BNPL. The top B2B marketplaces are enabling this seamless payments and financing experience on large B2B transactions — often worth hundreds of thousands of dollars.

  • At least 33% of the top 50 B2B marketplaces already have implemented this capability and our research indicates that, within six months, it’ll be over 50%.

What’s more, these fintechs are handling all the hassle of payments and collections on the seller side, making it easy for the marketplaces to offer this feature without having to make huge investments in developing a financing capability.

Why Fintechs are Beating Distributors’ Financing Capabilities

Every B2B distributor proudly touts that part of its value proposition to customers is financing. Also, B2B distributors believe they have already licensed good tools in this space from more classical B2B financing software companies. Now, the B2B marketplaces have figured out how to one-up the traditional financing offering from distributors. But here’s the trick: They’re not doing it alone. Only one of the top B2B marketplaces (Faire) has built its net-term financing capability in-house. The rest of the B2B marketplaces are using third-party B2B fintech startups to provide this capability.

Applico’s large distributor clients like to say how they will provide at least $1 million worth of credit. That’s not the appeal of the fintechs, however. Instead, the fintechs provide near-instant approvals that require only a handful of items of information from the buyer. They make the credit approval process easy and nearly instant, something that most B2B distributors and their existing financial software providers have not figured out.

These new fintechs might not lend $1 million, but typically they can lend up to a few hundred thousand dollars in the near-instant model, which is plenty for most business customers looking for extended credit terms.

This capability enables B2B financing to fit into a seamless digital checkout flow that matches the ease of use you’re used to seeing on consumer marketplaces. But this capability isn’t just limited to e-commerce sales. With some providers, it can also be extended to enable offline sales teams to provide instant credit to non-digital buyers as well. Ease of use? Check.

Lastly, these fintechs also offer a seamless consumer-payment experience. They allow the business customer to pay with a variety of methods: ACH, check, wire, debit or even credit cards. If a business wants to pay with a credit card, they can allow the distributor to choose if they want to pass on an extra processing fee.

Not Just Easy for the Buyer

The best part for distributors? The experience doesn’t just get better for the buyer. When using one of these net-terms providers, the seller (you) also gets paid right away. That means the provider is taking on the risk for the net-terms financing.

The fintech typically takes the risk on its own balance sheet, or it works with a network of lenders that sit behind them and take the risk. So, for distributors, you can extend net terms to your customers without the negative cash flow impact.

These providers also handle the servicing and collections process, meaning no more cumbersome and costly AR collections process for the distributor.

Taken together, the experience these fintechs have created is truly end-to-end. They are bringing a delightful, simple way for business customers to make payments while taking most of the pain of offering B2B financing away from the marketplaces or distributors.

The Risk of Waiting

Customer behaviors are changing. Business customers are used to buy-now, pay-later offers in the consumer channel, and they expect seamless payment capabilities. These B2B payment and net terms financing capabilities are fast becoming a go-to feature for the top marketplaces. Distributors who fall behind risk letting B2B marketplaces win over their customers on service. Distributors pride themselves on offering top-quality service, so why should they let the marketplaces win on a more delightful experience of payments and net-terms financing?

Read our white paper breaking down the ins and outs of the B2B payments and net-term financing tech startups. And, sign up for our upcoming webinar for an interactive discussion.

Alex Moazed is the founder and CEO of Applico. He founded Applico in 2009 when he was 20 years old and funded the company with his own credit cards. Alex co-authored the best-selling book, Modern Monopolies, which defines the platform business model dominating the 21st century economy

Nicholas Johnson is principal at Applico, where he works directly with Fortune 500 C-Suites and Boards to help them build and buy their own platform businesses. He also oversees the company’s research into platforms, including the launch of a forthcoming platform business ETF.

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