Ensuring that payments are fast, accurate, and secure is fundamental to the success of a B2B marketplace. But managing these payments is easier said than done. The nature of B2B transactions means that large volumes, high values, and long payment terms come as standard. Add payouts in multiple currencies plus international tax and regulatory considerations, and it’s easy to see how bottlenecks occur.
To ensure seamless payments, B2B marketplaces need specialised processes and solutions that can handle the complexity of B2B transactions, manage credit and fraud risk, ensure compliance and, ultimately, win the trust of buyers.
Sadly, not every marketplace gets it right. Just one third of all global B2B payments are processed electronically, creating opportunity for error and delay. With a quarter of sellers representing 88% of all marketplace revenue, problems like this carry a high cost. To avoid common pitfalls, a growing number of B2B marketplaces have elevated their payments processes from a hidden back-office function to a key part of their e-commerce strategy.
So, how does a marketplace transaction work? First, sellers list products or services on the marketplace, and then buyers initiate transactions by placing orders and authorising payment for the purchases made. Sellers arrange delivery after receiving an order and send invoices to buyers. The marketplace itself provides a platform where buyers and sellers can connect. They facilitate transactions by hosting product catalogues, enabling order placement and, sometimes, integrating with payment services providers (PSPs) to streamline payment processes.
Marketplaces can operate as “merchants of record” or simple intermediaries. This has an impact on the accounting and flow of funds. For the rest of the article, we focus on the case of marketplaces which remain pure intermediaries and don't take goods or services onto their balance sheet.
Meanwhile, banks, payment gateways, fintechs, and PSPs ensure the smooth transfer of funds between buyers and sellers. They handle payment authorisation, fund transfer, payment terms, and security measures to protect sensitive financial information.
To better understand how payments flow in a marketplace, these processes can be divided into five different stages. Step 1: Order placement
A buyer browses the marketplace and places an order. The marketplace confirms the availability of the items (often by checking with the sellers) and generates an order summary. Step 2: Invoicing
The seller receives the order details and sends an invoice to the buyer. This is often orchestrated by the marketplace if it has received an invoicing mandate from the seller. The invoice includes itemised costs and any applicable taxes or fees, as well as the marketplace’s commission. Step 3: Payment authorisation
The buyer reviews the invoices and authorises the payment. The marketplace validates the payment details and confirms the availability of funds before proceeding. Step 4: Fund transfer
The PSP facilitates the secure transfer of funds from the buyer’s account to the seller’s account. This may involve encrypting sensitive data, adhering to compliance regulations, and confirming transaction settlement. Baskets can contain goods from several suppliers. This means the marketplace will have to operate "split payouts" to pay the relevant sellers and take their commission along the way. Note that steps three and four may happen simultaneously with step one. Step 5: Reconciliation
The marketplace and PSP ensure that the transaction details, including amounts, fees, and commission charges are accurately recorded and reconciled.
There are several challenges that can prevent marketplaces from providing a smooth and secure payment process. Below we explore some of those challenges and how fintech solutions can help mitigate them.
Marketplaces offer an effective way for sellers to reach buyers in new regions, but international orders introduce a range of additional complexities. A partnership with a best-in-class fintech provider can help marketplaces meet buyers and sellers in all relevant geographies by handling regional tax and compliance, supporting local payment preferences and invoicing specificities, as well as conducting payouts in different currencies.
Leading marketplaces have identified that payments are the cornerstone of a successful and frictionless checkout experience. Offering the best combination of payment plans (pay now, pay later, instalments) and settlement methods (bank transfer, direct debit, card, etc.) is key for optimising conversion rates and building long term differentiation.
In B2B, trade credit is the standard payment method because it helps businesses to access more capital and accelerate growth. This means allowing the buyer to pay on credit terms, typically 30 or 60 days after the invoice is raised. In reality, it can be risky and complex for marketplaces to offer payment terms, as it means taking credit and fraud risk on hundreds of buyers. However, payment terms are a massive growth enabler to build stickiness and repeating transactions.
Payment terms solutions allow marketplaces to offer extended trade credit without sacrificing their own cash flow. This ensures liquidity and working capital for sellers while offering buyers the payment flexibility they expect.
Trust and reputation are two of a marketplace’s most important attributes, so ensuring the security of sensitive payment information is paramount. Marketplaces must implement robust security measures, such as encryption and multi-factor authentication, to protect against fraud and credit risk – which can drain resources if conducted entirely in-house.
Outsourcing to a payments provider that offers end-to-end fraud and credit management helps to protect marketplaces from the risks of non-payment and late payment. Simultaneously, a high acceptance rate can be maintained, enabling legitimate buyers to get seamless access to the service they deserve.
Payments are no longer an afterthought for marketplaces — they are now a key part of the customer experience and can be used to build trust and reputation. Efficient and reliable payments can also be a crucial differentiator as marketplace competition grows and margins come under greater pressure.
Fintech providers like Hokodo make it easier than ever for B2B marketplaces to unlock the value of payments and accelerate their growth. Visit www.hokodo.co to learn more.
Louis is the Co-founder and President of Hokodo, where he leads the product strategy and development of the company’s payment terms solutions. Louis was previously the head and founder of the Digital Agency at Euler Hermes, the world’s leading trade credit insurer and part of the Allianz Group. He started his career in strategy consulting at Oliver Wyman, where he was a Principal in the Financial Services practice.
Hokodo is a provider of flexible payment terms for European merchants and marketplaces. Bringing all the elements of trade credit management onto one platform, Hokodo enables buyers to access payment terms even on their first purchase, while merchants get paid upfront and in full, and remain 100% protected from risk. Hokodo is driven by rich data and backed by Lloyd’s of London to insure payments and ensure peace of mind.
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