Photo by Scott Graham
Originally Posted On: How flexible payment terms grow B2B e-commerce sales | QuickBooks (intuit.com)
Every CEO wants their company’s revenue to grow. After all, it is one of their primary metrics of success. A sizable increase in sales is not usually easy to come by, and business owners must employ creative tactics to continue driving growth. In today’s competitive multi-channel business landscape, companies that don’t think outside the box and develop creative solutions to move the needle will find their days numbered.
One simple tactic that wholesale businesses can use to increase B2B e-commerce sales across every channel is to offer flexible payment terms. This means offering a variety of flexible payment options as well as more time to pay. Giving customers an extension to pay for products—especially when they’re new to your business—is a bold yet simple change. Any business can implement it to help increase sales.
Offering flexible payment terms is an effective way to drive sales because it will improve the way customers shop, which is a major benefit to buyers. In this post, we’ll cover three ways flexible payment terms can boost B2B sales so you can decide if it will work for your business.
B2B e-commerce payment methods
In the B2B e-commerce sector, it’s common for customers to place large orders. As such, B2B businesses often extend credit to customers or offer a range of payment methods that make managing these higher costs easier. Some of the most common payment methods accepted by B2B e-commerce businesses include:
- Purchase orders
- Credit cards
- Debit cards
- Mobile wallets
- ACH (automated clearing house) payments
- Cash upon delivery
In addition to these payment methods, you’ll want to implement flexible payment terms to make it easy for customers to do business with you.
How flexible payment terms can increase sales
To accommodate these larger orders that are typical of B2B sales, it can be beneficial to offer more flexible payment terms. This way, you can increase ease of doing business and, in turn, drive more sales.
Here are three important ways flexible payment terms can increase sales:
1. Reduces customer risk
Whether you’re selling new products to existing customers or trying to break into a new vertical, retailers and distributors are hesitant to buy unproven products. One strategy that reduces their risk and improves their cash flow is to give them time to pay for your products rather than requiring payment up front.
A 30- or 45-day B2B payment term can supercharge your sales team by giving them an additional closing tactic. Payment terms lower the barrier to entering new markets and instill an additional layer of trust with your customers. Giving customers time to sell some of the product before paying for it will make buyers feel more comfortable trying new products or working with a new brand. This is especially true if it’s their first transaction with you.
This isn’t just a tool for new markets and products but an important seasonal sales strategy as well. Many industries have a natural ebb and flow for sales, and allowing your terms to be flexible based on your buyers’ needs will help you both grow. Giving a longer payment term on preseason orders will enable your customers to purchase more product in preparation for the busy season ahead. It can also give you better insights into your demand forecasts down the road.
2. Incentivizes your customers
Not convinced your customers will be excited at the prospect of having extra time to pay for product? What if you offered them a discount for paying early? An important benefit of this approach is that it helps you reduce your accounts receivable. Offering discounts to customers who pay early will reduce your days sales outstanding (DSO), allowing you to close more payments faster.
This approach works by offering a percentage off the total cost of a purchase if the buyer pays earlier than specified in the payment terms. For example, let’s say the standard payment terms are that payment is due within 30 days. However, if they pay within 10 days, they receive a 1% discount on their purchase. In payment terms, this is noted as 1%/10 Net 30.
While 1% might not seem like a lot offhand, it is a notable incentive for those ordering large quantities of product from you. When considering whether to offer a discount to drive sales, make sure you weigh the cost benefits. The trade-off is that you’ll be taking a loss up front, but you could increase your sales and revenue significantly over time with discounts.
Incentivizing B2B customers by offering discounts for those who pay early is an innovative way to get them excited about trying your products. It also helps customers establish a relationship with your brand. This can help you establish customer loyalty and build a reliable revenue stream.
Additionally, it can help you set up a predictable payment pattern with this client from the beginning. With consistent early payments, you can better predict incoming cash flow, especially if you can get the majority of your B2B customers on board. It may also save you time and effort since you won’t have to track down as many past-due invoices. They’ll also be grateful when they don’t have to worry about late fees.
One of the most challenging aspects of growing a new business is breaking the mold of conventional ideas, and payment flexibility is certainly unconventional. Changing consumer behavior is challenging, but with a little nudge, customers might be willing to try something new, especially if it improves their bottom line. It’s a win-win for everyone.
3. Increases transactions and unit sales
With buy-now-pay-later (BNPL) options, B2C retailers have seen major sales growth, with a 45% to 80% increase in new customers and a 50% to 200% increase in units per transaction. Similar to B2C retailers offering BNPL payment options, B2B e-commerce wholesalers can see similar growth with more flexible payment terms.
For example, combining a B2B e-commerce store with flexible wholesale payment terms can double the growth of wholesale sales. This was the experience of The Elephant Pants CFO and founder James Brooks. The company sets wholesale terms on a buyer-by-buyer basis, which doubled their sales within two months.
Offering more flexible payment terms can quickly grow your sales volume and average order size in a meaningful way. Extending credit to your B2B buyers isn’t easy, so choosing appropriate payment terms that you can realistically manage is essential to establishing a scalable sales strategy.
Options for offering flexible payment terms
There are various ways you can go about offering more flexible payment terms to your B2B customers. The most common payment terms are:
- Net 30: Payment due in full within 30 days.
- Net 45: Payment due in full within 45 days.
- Net 60: Payment due in full within 60 days.
If you want to offer discount payment terms, you would denote it as:
“Discount/Expedited payment/Net final payment period.”
For example, a 2% discount for payments made within 10 days on a purchase with a 30-day payment period would be denoted as 2/10 Net 30.
In addition to these timeline-based payment terms, you can also specify whether partial payments are required in advance. Offering payment plans may help you collect money sooner. For example, you may request a 10% deposit up front. This option may be an opportunity to find a middle ground if you’re concerned about a lull in cash flow. Customers still have more time to pay in full for the products they’ve purchased, but you get some of your money up front. However, you should carefully weigh the pros and cons, as it might not be as effective for sales growth compared to payment terms without a deposit.
Which payment terms will be the most advantageous for you depends on your business’s current financial standing and plans for growth.
Implementing flexible payment terms
Do you think flexible payment terms could be a revenue driver for your product-based small business? If so, it’s time to implement flexible payment terms and start making sales.
With QuickBooks Commerce, you can optimize your sales strategy and operations, from managing orders and tracking inventory across all platforms, to providing real-time sales insights and powerful reports. QuickBooks Commerce allows you to establish your own B2B commerce platform, and it integrates with most major sales channels, including Shopify and Amazon. And, since it’s integrated with QuickBooks Online, you can easily update your payment terms and customize invoices for your B2B customers, streamlining the online payments process.
When setting up flexible payment terms, it’s important to consider what length of time your business can realistically go without the income from orders. For example, is your business better equipped to handle a Net 30 payment term? This means you’ll receive payment in full within 30 days of purchase. Or, is your business in a position to withstand longer gaps in payment, say 40 to 60 days?
Consider testing out different payment term options with a few key customers before applying this practice to the majority of your sales. That way, you can see how it’ll impact your monthly cash flow and bottom line while maintaining some stability.
Flexible payment is the future of sales
Flexible payment terms offer an easy opportunity to increase sales while strengthening your customer relationships. In tandem with more flexible payment terms, you can start using advanced tools to help boost B2B sales on multiple channels.
Gain total control over your business in a single platform that allows you to make smart decisions and can drive sales and growth. With QuickBooks Online and QuickBooks Commerce, you’ll be better equipped to make informed decisions about your small business and implement these strategies to increase B2B sales. The best part? It’s all managed within one user-friendly platform that’s built with businesses like yours in mind. Find out if QuickBooks Commerce is compatible with your business today.