Irene Malatesta

Buying online has become more speedy, simple, and seamless than ever over the past decade. We are all used to a one-click world in which we order on Amazon.com and a package arrives on our doorstep the next day. We hardly consider the mechanics of how we pay for everything from Uber rides to Netflix movies to Walmart groceries: Credit-based transactions are swift and efficient; products are sent; we get what we need—end of story.

Historically, this has not been the case in the world of B2B e-commerce, which requires more highly complex transactions than in the consumer world. Unlike clicking “Buy” on Amazon, for example, purchasing or selling B2B goods and services often involves multiple decision-makers, high-value deals, and a finely targeted customer base.

Complicated B2B payment methods also tend to slow things to a crawl. In B2B transactions, customers often don’t pay up-front, but wait until they have received goods and services purchased using trade credit, or “net terms.” Contracts may include prepayments or partial payments in order to receive discounts or gain increased flexibility. Invoices, of course, also have to wind their way through various stages of approval. In addition, complex fees and taxes are part and parcel of cross-border B2B payments.

Getting beyond typical transactions

Typical payment methods also add to B2B’s reputation for delays and asynchronous transactions that result in cash flow issues, delayed deals, and slowed growth. According to the Association for Financial Professionals, 51% of B2B payments in the US are made with checks, with the other 49% spread across Electronic Funds Transfer (EFT), prepaid debit cards, Automated Clearing House (ACH) credit, and debit transfers.

As a result, B2B payments have not happened in real time within the context of apps, platforms or marketplaces until quite recently. Trade credit can take too long for sellers to approve and buyers may seek additional negotiation.

This isn’t an ideal situation for anyone. There are some significant downsides to traditional B2B payment methods from both the seller and buyer standpoint. For one, merchants get stuck having to act like banks: They must assess each buyer’s risk and often leave money on the table due to lack of data or speed to close the deal. Buyers, on the other hand, may struggle to finance their purchases over time or get the inventory they need to grow. They also much bear the administrative headache of negotiating terms with multiple vendors.

The evolution of real-time B2B payments

Luckily, times are changing. Both sellers and buyers are demanding easier ways to make B2B ecommerce payments that match their own seamless consumer ecommerce experiences. Finally, technology is catching up to their needs, thanks to AI-driven solutions that bring the ease of using credit in B2C to the more complex universe of B2B.

Making B2B payments real-time requires two things: Underwriting must happen fast, yet accurately, to help lenders approve more borrowers and significantly reduce defaults. On-demand capital must be available. But only recently has technology gotten to the point of fast, near-instant underwriting, thanks to artificial intelligence and machine learning. These technology applications swiftly and fully analyze mounds of data about a buyer’s financial background and quickly issue a risk score for providing credit.

In areas including personal loans and mortgages, this has become the norm: SoFi and Rocket Mortgage by Quicken, for example, are both in the business of machine-learning-enabled underwriting, so they can speed up access to capital. Affirm offers instant, AI-driven underwriting to shoppers who don’t want to use traditional credit.

Now, B2B payments can eliminate the wait as well through AI-powered ecommerce payments technology, which can offer near-instant credit decisions within the workflows of other platforms, marketplaces, portals, and applications. For example, a “net 60” payment option can be made available during the online checkout process.

Now that nontraditional lenders—which are actually data-driven technology companies—can leverage AI and machine learning to tame the torrents of data around business transactions, the traditionally slow, cumbersome B2B payment ecosystem can now evolve. It helps that small-business banking transactions are more likely to exist in the cloud, which allows credit underwriting to rely on increasingly “open” banking with more accessible data.

The future is bright for frictionless B2B e-commerce

After the introduction of credit cards in the 1950s, the world of B2C payments never looked back. It was a massive win for shoppers and stores in every category from groceries to furniture and appliances. The future of frictionless payments looks similarly bright for B2B ecommerce, which no longer has to settle for traditionally slow-as-molasses payment transactions that create problems for small-business buyer and sellers.

It is those very businesses that are driving change, as their expectations rise with every easy B2C transaction they experience. Buyers and sellers want the same seamless journey through the payment process that they enjoy in the rest of their lives. With fast, instant credit options, fintechs are now able to improve their operations thanks to data science and AI; sellers no longer have to act like banks; buyers no longer need to settle for poor payment terms. The better way to handle B2B payments has arrived.

Irene Malatesta is a business content strategist at Fundbox, a provider of electronic payment technology and services on an AI-driven platform. At Fundbox, she is responsible for analyzing and writing on trends related to B2B e-commerce, SMB credit, payments, and business capital. Irene is the author of the research paper “What If” which chronicles the gender credit gap and specifically women-business owners and their journey for fair and equal access to business credit.