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One in three B2B buyers purchase at least half of their products on business-to-business marketplaces¹. It’s safe to say that we’re seeing a boom in the marketplaces, portals, and apps powering these experiences. As this space continues to grow, trends are coming to light that are shaping their B2B payments strategies – specifically toward embedded finance in the form of invoice funding.
Before going much further, let’s define invoice funding since it’s not usually a familiar term. Invoice funding, also referred to as invoice factoring or invoice financing, enables business owners to get invoices paid in advance of 30, 60, or 90 day terms. A business owner who needs to increase their cash flow sells the invoice to a factoring company, who then pays the business owner the invoice amount (less a fee). The factoring company then receives payment from the business owner’s customer according to the payment terms. With cash in hand, the business owner can make payroll, buy supplies, or fund a growth project. (See a full definition of invoice funding here.)
After speaking with B2B marketplaces, portals, and apps who are exploring their embedded finance options, we’re sharing the most popular trends influencing their thinking.
Curious about what embedded finance could look like in your marketplace, portal, or app? See the embedded experience and join the beta!
1. Increased demand caused by COVID-19
As the pandemic halted physical movement, sellers and buyers both needed ways to connect remotely to continue doing business. Consequently, B2B marketplaces, portals, and apps saw both the frequency of transactions and the average transaction size rise dramatically. Digital Commerce 360 B2B surveyed about 85 business buyers in July 2020 and found that 89 percent of purchasing managers were buying at least the same amount or significantly more on B2B marketplaces as a result of circumstances brought about by COVID-19. Fifty-seven percent were spending even more on marketplace ecommerce sites, including 22 percent significantly more.
We’ve also heard that COVID-19 is disrupting supply chains. Portals and apps selling directly to businesses need to fulfill orders for goods in a timely manner. Having cash available to preorder goods enables them to overcome supply chain issues caused by the pandemic, and it’s one reason they’re exploring invoice factoring.
2. Marketplaces, Portals & Apps need to build trust with buyers and sellers
B2B payments are estimated to be about $120 trillion dollars a year globally. (To let that sink in, that’s 12 zeros, or $120,000,000,000,000!) The high spend creates high stakes for the buyers and sellers in any transaction, so B2B marketplaces, portals, and apps have to find ways to build trust. It’s undeniably important for recruiting suppliers, attracting buyers, and ultimately increasing stickiness and revenue.
In addition to vetting suppliers and facilitating connections, many of these organizations are taking on credit risk to build trust: they are ensuring suppliers get paid quickly while extending credit in the form of long payment terms to buyers. This ties up cash that could be better spent on growing the platform. Invoice funding fixes mismatched payment expectations by ensuring buyers still get flexible terms while allowing sellers to sell now and collect now – without putting marketplaces in a cash flow crunch.
3. Millennial B2B decision-makers want a digital buying experience
73 percent of B2B buyers are Millennials, or people aged 25 to 39. More than a third are the sole decision maker. This group doesn’t want to handle B2B payments the traditional way, which is often through an emailed (or even snail mailed) invoice and a manual ACH transaction or mailed check. Marketplaces, portals, and apps are discovering that this generation wants – and expects – the speed and ease of digital payments, just as they do with B2C purchases in their personal lives.
In early iterations of B2B marketplaces, placing orders digitally was common, but the payment was handled offline. Today, embedded finance increases platform stickiness, resulting in a higher volume and totals of transactions.
4. Increasing competition means marketplaces have to differentiate
Due in part to the first trend we discussed of COVID-19 increasing demand, we are in the midst of a B2B marketplace boom. One study says B2B marketplaces will account for 30 percent of all global online B2B sales by 2024; estimated to reach $3.6 trillion. (To give you some perspective, that’s up from $680 billion in 2018!)
Traditional marketplaces are horizontal, catering to many industries (think Amazon Business). Now, many of the new marketplaces, portals, and apps are vertical, and they are racing to be the leader in their chosen space. Embedded finance is one way these organizations are adding unique value to their users (just see how many use cases there are!), giving them a point of differentiation that buyers and sellers both find appealing.
5. The need for data to inform effective improvements
All businesses need data to make informed decisions and learn about customers – B2B marketplaces, portals, and apps are no different. By keeping B2B payments within the user experience, it provides a rich source of information that can answer questions like:
- What is the size of our average transaction?
- How many transactions are we making in a month or quarter?
- Which types of suppliers are selling most/buyers buying most?
- How long is the sales cycle?
- When are most/fewest sales happening?
Data like this is crucial for informing decisions about tailoring the experience and leading the business in ways that will ultimately make it most successful.
Interested in embedding FundThrough?
Learn more about our approach to embedded invoice financing and talk to us about the beta!