Anyone involved in ecommerce, at any level, will be aware of the unique set of business circumstances and challenges that await those running a B2B (business to business) service compared to those serving individual consumers – B2C (business to consumer) ecommerce. One of the things which undoubtedly sets apart B2B operations is that you can be certain that you will be dealing with an invoice. In fact, over 95% of B2B ecommerce clients say they prefer payment by invoice. Moreover, it is a unique system of payment that impinges on everything from order fulfillment to inventory stocking.
What is Payment by Invoice?
The great advantage of invoicing – something which will be well known to anyone who has ever so much as encountered an invoice – is that the customer receives the goods or services immediately, and they pay later after being sent an invoice. This makes it particularly suited to B2B because the precise needs of B2B clients (as opposed to B2C customers who typically make one-off purchases) can vary throughout the process of the order itself.
Clients prefer invoicing because they can typically use the service to the extent of their needs and then afterwards pay for what they have used. For example, if you run a B2B ecommerce site providing goods to a client, and the goods prove immediately popular, the client might suddenly order more. It is best for everybody if this does not involve a whole new business transaction every time they do so.
However, there are of course certain downsides to invoicing, even for B2B enterprises. One of the most important for small businesses, we will come onto now.
Delayed Payment, Cash Flow, and Invoice Factoring
The thing about invoices is that payment is nearly always delayed in some way. If a client uses your services or buys products from you for, say, a month and then pays for everything at the end of that month, it is clear that you will be waiting some time for the money for the products or services purchased earlier in the month. This is the delayed payment that invoicing inevitably involves, and it can be a problem for smaller businesses.
This problem is closely connected to the issue of cash flow. Cash flow refers to the funds that you have available over a certain period of time. It is different from the profits you make. To return to the previous example, you may have supplied that service on the first of March, but you will not see the money for it until the end of March. If this causes you trouble (i.e., you need the money sooner) then you have a clear cash flow problem.
Luckily for smaller businesses looking to make the most of the invoicing payment method, there is a solution to this problem. Invoice factoring is a service that allows you to be paid (by a third party) upon the presentation to them of an order invoice, even if the client hasn’t paid yet. When the client does finally pay you, you pay back the invoice factoring company – with a small added fee. FastFactr, an invoice factoring service, says that they see a lot of their trade from small B2B ecommerce ventures with initial cash flow problems. So, this is certainly a solution to keep in mind.
Ultimately, invoicing is an easier method of payment for clients who may not know the extent of their orders from the very beginning. It is preferred by them, and it makes things easier so you should certainly consider it for your own B2B ecommerce venture. It could be the ticket to real growth.