B2B Payments in Africa
The ultimate goal of every business is to get paid successfully.
Your business needs to meet buyers with the right product/services, at the needed time and place, offer a payment option that works, and a payment term that's flexible to favour the buyer and the transaction.
The top considerations are, when they pay and how they pay. Sellers wishing to eliminate the friction should focus on these exact issues;
- How they get paid (Meaning they need to seamlessly accept and record transfers, cards, wires, and checks)
- When they get paid (Meaning they have to offer payment terms)
- Where they get paid (preferably online, using modern technology providing a frictionless payment journey).
Offering a flexible, streamlined, and delightful payment experience is key to succeeding in selling to other businesses.
What are B2B payment terms?
A typical business transaction would be, A business buying inventory from the manufacturer, and paying for the inventory only after it's been sold.
The manufacturer's customer buys the goods wholesale and might be paying the manufacturer with extended terms, like ‘net 30' which means, thirty days after the delivery of the shipment. And the manufacturer pays its suppliers with even longer extended terms, like ‘net 60,’ sixty days after the delivery of the raw materials used to create the product.
Offering payment terms hurts your cash flow as much as it helps your buyers’ cash flow, but not offering terms undermines the ability to transact in the first place. Wouldn’t it be nice if there were a way to extend terms without hurting your cash flow? That solution exists, and it's called Invoice financing.
Top Pain Points for B2B Buyers
A Deloitte survey found that the key pain points for middle-market businesses are:
- Payment delays
- High processing costs
- Fraud risk
- Limited transaction visibility
- Supplier payment methods
- Manual AP processing
- Remittance data and processing
How do these pains translate into lost revenue? According to MSTS, “48% of B2B buyers did not complete a purchase for their companies because their preferred payment method wasn’t an option.”
That's billion of trade dollars lost annually (that Africa can't afford) in total value.
What are the top B2B payment mechanisms?
As we have seen, there are so many ways that businesses can get paid, but just as important - there also are a lot of possible scenarios that can trigger a payment. We’ve mentioned net terms earlier, but that’s just one of several common terms. Buyers might pay in installments for larger purchases, like when purchasing a full set of office furniture or at pre-set project milestones, like in the construction services industry. For SaaS companies, subscription payments are commonly used.
Milestones payments
Milestone payments are used frequently in the services industries and help buyers build trust with sellers.
Construction contractors, creative agencies, and even headhunters accept milestone payments to tie payment to progress and make it easier for buyers to trust them.
Another specific use case of a milestone-based payment would be paying for goods upon delivery. For example, B2B marketplaces may allow buyers to pay upon delivery to help facilitate trust on the platform.
Instalment payments
Milestone payments, such as instalments, help buyers with cash flow and budget management and can be particularly helpful to new businesses or support new revenue streams.
Like any flexible payment mechanism, offering instalments can help build customer loyalty. For example, a company selling health and fitness equipment to gyms might offer instalment payments so that the gym can start generating revenue before its payments are due. Just like milestone payments, instalments carry a degree of risk.
Net terms for B2B payments
It’s common practice for companies to seek extended terms with their suppliers. The most well-known set-up is for businesses to be allowed to pay 30, 60, or 90 days after they receive goods or services, with no interest. This impacts the buyer’s working capital by giving them the chance to resell goods before paying for them or to use the goods for manufacturing and send it to distributors before the bill is due. In some cases, merchants offer a discount for earlier payments.
Because net terms are something buyers need, it’s also something merchants need to offer (and in turn ask for themselves from their suppliers). The business extending the terms benefits from offering a more attractive value proposition and increased customer loyalty, and that is reflected in a significant sales and order size lift.
But all this comes at the cost of the supplier’s cash flow. This is where 3rd party financing comes into play, as we’ll discuss later.
How can businesses offer transaction financing to more buyers?
Buyer relationships and trust are the cornerstones of traditional transaction financing. In many industries, some form of transaction financing is common and expected. Companies that want to offer to finance need to consider the risk of doing business with new buyers, or with small and medium businesses that may be less reliable. The other challenge with financing is that credit approval is typically a longer process that may lead to abandoned transactions or churn.
Why is it difficult to assess risk?
Risk assessment can be a complex calculation, and getting it wrong has major consequences if a buyer fails to pay. Risk assessment looks at macro factors like country risk (economic, political, and social environments), company characteristics and competitive position (size, cash flow, market share, profitability, stability proxies in general), the previous relationship with the merchant, public data about the sales volume and inventory turnover.
All these bear costs, it's expensive to run credit approval in-house. Some merchants will use a third party to either assess risks or offer terms.
Who gets financing?
The overhead of assessing risk often leads to the process only being done for big customers and large transactions, meaning the long-tail of smaller businesses and smaller transactions cannot be assessed for financing by the in-house team and is often a missed opportunity.
With more advanced credit approval technology, sellers can make better, faster decisions and make sure that no low-risk buyers that should have been approved are denied financing, no matter their size.
The top ways for business sellers to overcome the challenges of financing:
- Outsource the credit program to a third party
- Run an in-house financing unit
Regardless of how businesses manage risk and credit approvals, they can make a significant impact on the bottom line by choosing a solution that is fast, technologically advanced, and approves buyers for terms.
How can businesses start accepting payments online in 2021?
Since 90% of business transactions take place offline, there is a lot of room for improvement - and many opportunities for cost-saving and streamlining. The solution a business should choose depends on the technical resources they have available.
A good payment automation solution makes sure that incoming payments, by any payment method, are automatically matched against the right invoice. It also makes sure that instalment payments are made on time and when they're done, that the transaction is settled as paid in full.
If businesses can speed up their invoice-to-payment time, they can deploy the funds for other purposes.
Here’s what to look for in a B2B payment solution:
Companies that process payments offline or manually can benefit from a solution that provides a home for all incoming B2B payments online. Ideally, they should be able to log in to their service online and handle all aspects of payments in one place.
Key payment platform functionalities to look for:
- Create payment requests
- Issue digital invoices
- Get invoices financed
- Global support for local currencies and crypto-currencies
- Global Instant payment and collection
- Omni-channel payment support
- Analytics and data
What's next?
Innovations until recently focused on customer segments, like one-click checkout, identity verification solutions and buy-now-pay-later, and others.
Startups that win, will build a consumer-like experience that can solve business-specific problems.
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