Trading Partners Prefer Faster Lending Decisions Delivered by In-House Credit Bureaus

While the buy now, pay later (BNPL) solution has exploded in recent years and continues to transform payments in the business-to-consumer (B2C) space, similar models like trade credit have been around for decades, if not centuries, defining how much time buyers have — often 30 to 60 days — to pay suppliers back for goods purchased.

But while merchants are not new to granting trade credit to their business customers, it can still be very challenging and time-consuming to determine eligibility, Louis Carbonnier, CEO of French B2B BNPL firm Hokodo, told PYMNTS in an interview.

Read more: The Next Trillion Dollar BNPL Play Will Come From Untapped B2B Segment

“In a good year, 1% of U.K. companies are going to default, while in a bad year, it may go up to 2% — it’s in that ballpark. But then the actual eligibility of professional customers to [access] credit terms is often in the region of 50 to 60%,” he said, highlighting the roughly 40% of U.K. companies that should be eligible for trade credit but are refused access.

It’s a problem that’s spurring the growth of in-house credit bureaus that can make faster decisions for buyers without the need for third parties, he said, pointing to Hokodo’s proprietary tech, credit and analytics stack, which the company uses to source its own data and create its own credit scores.

See also: Hokodo Raises $39.7M in Series B Funding

“Having this ability to segment various companies in a country with a lot of granularity and isolate the pockets that are eligible for payment terms is a good way to bridge the financing gap in the economy and alleviate the liquidity issues that suppliers and buyers might face,” he noted.

Today, the French BNPL provider, which is also available in the U.K., France, Spain, Germany, Belgium and the Netherlands, has built a database of 40 million European businesses helping to guide their underwriting process.

Don’t Break Online Purchasing Experience

Per Carbonnier, another real pain point of merchants is the lack of viable solutions to manage payment terms when selling online.

To fix this, some merchants try to cobble some of the incumbent payment solutions together, putting their business clients through a lengthy process of applying for trade accounts via their websites, downloading and filling forms, submitting financial statements, and often waiting up to 48 hours to hear back for the merchant to approve the trade credit.

According to Carbonnier, “That breaks the whole online purchasing experience. It’s not at all like a one-click Amazon payment [customers are used to].”

On top of this, merchants have the added task of reconciling invoices and funds received and balancing it against their credit limits, while piecing together data from credit bureaus, collections agencies and crediting insurers that are not real time.

Related: Hokodo Puts BNPL To Work For UK B2B Marketplaces

“None of this allows you to deliver instant credit decisions to your customers [or] offer a seamless purchasing experience on your website whereby the customer can select what they want to purchase or instantly see whether they can have trade credits,” Carbonnier argued.

Looking at recent data from McKinsey showing that 73% of B2B buyers today are millennials who prefer to buy online, he further stressed on the need to deliver the same frictionless and seamless purchasing experiences that these younger consumers are used to.

“In their day-to-day purchase from [marketplaces like] Amazon, these [millennials] have a great seamless experience and then they come to the workplace, and they have to procure on email and blue screens. That [only] makes the disconnect [bigger],” he added.

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