Managing merchant risks in B2B BNPL transactions

As a B2B merchant, you're always looking for ways to offer more value and flexibility to your customers, and Buy Now, Pay Later (BNPL) is quickly becoming a game-changer. But maybe you're wondering, “What about the risks?” Credit risk, fraud risk, operational risk — they all loom large, and it’s natural to feel cautious.

If that’s where your mind’s at, you’re in the right place! This post is going to break down how you can confidently offer BNPL to your business customers without stress. ‍

Introducing Buy Now, Pay Later (BNPL) in B2B

BNPL is a flexible payment solution that allows companies, specifically SMEs (Small and medium-sized enterprises), to buy goods and services, pay later, and manage their cash flow while making necessary purchases. Unlike trade credit, B2B BNPL offers more flexibility and quicker approvals. Using a BNPL service as a B2B merchant can help you:

• Boost conversion rates
• Minimize customer risk
• Increase average order value
• Improve cash flow management
• Attract new customers
• Enhance customer engagement
• Save time and costs
• Gain a competitive edge over rivals

Outsourcing or In-house credit risk management? 

Managing credit risk effectively is critical for maintaining a stable cash flow and reducing the chances of bad debt. Businesses face two main options: managing credit risk in-house or outsourcing it to specialized providers like PastPay. Each approach comes with its own advantages and challenges, and selecting the right one depends on factors like resource availability, expertise, and long-term goals. Below we compare managing credit risk internally versus outsourcing to find the best fit for your business.

In-house Credit Risk Management

• Operational overhead: Managing credit risk internally requires significant investment in resources, including staff with expertise in financial analysis and monitoring tools.
• Resource drain: In-house teams spend up to 50% of their operational time managing credit risk, including credit checks, monitoring, and collections​.
• Costly expertise: Hiring credit management professionals and investing in tech solutions can increase costs by 20-40% for small to medium enterprises​.
• Manual monitoring: Continuous monitoring of payment behaviors and managing defaults often leads to human errors and delays, increasing the risk of bad debts.
• Risk exposure: In-house risk management may fail to identify fraud early, leading to a 10-15% higher risk of bad debt compared to automated systems.
• Slower credit approval processes: Internal teams often lack the agility to approve or reject credit applications as quickly. Approval delays can range from 48 hours to a week.

Outsourcing credit risk management

• Cost-efficient: Outsourcing reduces costs by up to 40% due to the elimination of internal resource requirements (no need for in-house experts, software, or monitoring tools)​.
• Time-saving: Businesses save up to 30% of time by outsourcing credit management, allowing internal teams to focus on sales and growth.
• Automated monitoring: Providers like PastPay use AI and machine learning tools for real-time monitoring and reducing the risk of bad debt.
• Enhanced fraud prevention: Outsourced services with advanced algorithms can detect fraud earlier and reduce fraud-related losses.
• Faster approval: BNPL providers like PastPay can approve credit instantly using real-time data analysis, speeding up transaction times by 50-70% compared to in-house systems.
• Expertise on demand: Third-party providers offer specialized risk management expertise without the need for full-time internal staff, reducing overhead and boosting efficiency.

Potential risks for merchants offering BNPL

While BNPL brings numerous benefits to the table, it also introduces potential risks that merchants must carefully manage:

1. Default risk: This is the biggest risk, as a business customer might default on their payment obligations due to late payment or non-payment. For merchants, extending credit through BNPL can be risky, especially in B2B transactions where the amounts involved are substantial. If a customer fails to pay, it can lead to significant financial losses for the merchant.
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2. Fraud risk: In the B2B space, the risk of fraud is, of course, a serious concern. Fraudulent transactions can have devastating financial impacts, and verifying the legitimacy of business customers, particularly in online transactions, can be quite challenging. Merchants must carefully choose a B2B BNPL provider that can safeguard their business from these threats.
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3. Operational risk: Operational risks arise from internal process failures or external events that disrupt service delivery. For instance, technical issues with the payment system could lead to delays or errors in processing transactions, affecting the merchant's cash flow and customer relationships.
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4. Seller risk: Incomplete, incorrect product information – as well as orders that aren’t delivered correctly or on time – can harm the B2B merchant. To minimize seller risk, all merchants must have clear guidelines and standards. If customers have difficulties with a seller, they need to receive proper support.
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5. Data risk: BNPL providers like PastPay store both the merchant's data and their customers' information, which includes spending habits and personal details.  While this information helps the marketplace sell more efficiently, (GDPR) dictates that it can only be used with the customer's express consent and must be stored securely. If this information is leaked as a result of a data breach, it can irreparably tarnish the seller’s reputation.

These risks underscore the necessity for robust risk management strategies, including risk assessment, fraud detection, and operational safeguards.

How PastPay mitigates risk

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Conducting thorough credit checks and due diligence on business customers is crucial for minimizing risks. By evaluating the financial health and payment history of potential customers, merchants can reduce the likelihood of defaults and fraud. This process typically involves verifying business credentials, reviewing credit scores, and continuously monitoring payment behaviors.

PastPay provides a robust solution to the inherent risks in B2B BNPL:

1. Credit risk management
   • Advanced credit assessment: PastPay conducts detailed credit checks, analyzes financial histories, and monitors ongoing customer creditworthiness. This proactive approach minimizes the risk of defaults, ensuring merchants can extend BNPL services with confidence.
   • Continuous monitoring: PastPay doesn’t stop at initial checks. We provide ongoing monitoring of behaviors, allowing for real-time adjustments and responses to any emerging risks.
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2. Fraud prevention
   • Cutting-edge technology: PastPay utilizes state-of-the-art fraud detection systems to identify and prevent fraudulent activities. These systems are built on advanced algorithms that detect unusual patterns and behaviors.
   • Multi-layered security: Fraud prevention at PastPay is multifaceted, incorporating layers of security that protect against a wide range of fraudulent activities, from identity theft to transaction fraud.
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3. Operational efficiency
   • Streamlined processes: PastPay offers optimized operational processes that integrate smoothly with business systems. This efficiency reduces the operational burden on companies, allowing them to focus on core activities without being overwhelmed by risk management tasks.
   • Scalable solutions: The operational framework provided by PastPay is designed to scale with the merchant’s growth, ensuring that as business volumes increase, the systems in place can handle the additional financing volume without compromising speed, security or efficiency.

Conclusion: Why PastPay is the optimal choice for B2B BNPL

Managing risk of B2B BNPL transactions is not just a necessity; it’s a critical component of offering BNPL services effectively. By outsourcing this crucial task to PastPay, merchants significantly reduce their exposure to various risks.

• Holistic risk Management: Whether it's mitigating credit risk, preventing fraud, or ensuring operational efficiency, PastPay's comprehensive solutions offer merchants peace of mind.
• Business growth: With these risks managed by experts, merchants can confidently focus on expanding their business, knowing that PastPay’s systems are safeguarding their financial interests.
• Secured transactions: Transactions through PastPay are insured, which provides extra protection for merchants.
• Easier collection: PastPay also handles the whole collection process, so the merchant does not need to worry about the non-payment risk as PastPay assumes the risk.
• Faster validation: PastPay automatically qualifies buyers (in 2 secs) which makes the process faster and more efficient.

By partnering with PastPay, merchants are not just outsourcing a task—they're ensuring that their BNPL offerings are backed by a robust, reliable, and secure framework that supports sustainable growth and financial stability.

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