Industry Analysis: Trade Credit in The Wholesale Industry

For wholesale businesses, trade credit represents an important tool for increasing B2B sales, servicing repeat customers, and building long lasting relationships with buyers.

But selling this way in the wholesale industry is flawed…

Traditional trade credit solutions create excessive manual work, credit and fraud losses, and are nowhere near optimised for the way wholesale actually sells. Click and collect style sales, for example, are common in the industry, yet highly unoptimised thanks to excessive paperwork.

And of course, wholesale is not immune to the cash flow issues faced by every industry offering trade credit payment options.

In this article, we’ll be taking a close look at some of the struggles wholesalers face when selling on trade credit, as well as how B2B BNPL solutions from Two can help take your business to the next level!

Table of contents

1. Trade credit in wholesale
2. The impact of traditional trade credit in wholesale
3. Two's B2B BNPL solutions for the whole industry

Trade credit in wholesale

Trade credit essentially works as a 0% interest short-term loan for buyers.

The process of offering trade credit in the wholesale industry will vary, but in its simplest form it looks something like this:

‍Assessment: The wholesale company evaluates the creditworthiness of the buyer, considering factors like financial stability, payment history, references, and legal obligations.

‍Credit Limit: Based on the evaluation, the wholesale company determines the maximum credit amount they are willing to extend to the buyer.

Terms: The wholesale company establishes specific payment terms and conditions, including the payment period (e.g., 30 days, 60 days).

Payment: The buyer receives goods or services on credit and is expected to make payments within the specified payment period. The wholesaler sends invoices and follows up on collections if needed.

The impact of traditional trade credit in wholesale

While it’s no secret that offering trade credit has numerous benefits to sellers in the wholesale industry, late payments are rife. 

For example, 52% of wholesale companies report that late payments are the main source of challenges regarding cash flow, compared to 43% of other businesses. Couple that with the fact that 87% of businesses are paid after the invoice due date and you have a disastrous payment issue on your hands.

And it’s not just payment issues that are rife in wholesale. The cost of manual work can mount up. Many wholesalers have built long lasting relationships with buyers who come back again and again. But the reality of selling in wholesale is that each order creates a new invoice, more paperwork, and more operational strain.

So what’s the answer to these issues?

Two’s B2B BNPL solutions for the wholesale industry

To best answer this question, let’s start by looking at a real life example…REKKI.

Reducing admin

REKKI is a B2B marketplace app that connects thousands of restaurants across the UK and USA with local suppliers. With the goal of simplifying the work of chefs, restaurant owners, and suppliers (while increasing profits), chefs can now discover new suppliers and place orders on net terms, all in one place. 

Suppliers also benefit from being on the app by experiencing a consistent flow of business from restaurants in need of supplies.

Throughout the month, restaurants place multiple orders to replenish their stock. The industry standard payment type for these orders is on invoice. The issue, however, is that buyers end up with multiple invoices that need to be paid at different times.

Consider a restaurant that replenishes their stock 8 times a month. It’s challenging to keep track of what needs to be paid and when. With an already high workload, buyers and sellers on REKKI’s app needed a simpler way of consolidating their invoices into one.

And with Two, REKKI was able to do just that! Using Two’s Trade Account and grouped invoice feature, REKKI buyers could purchase what they need throughout the month while receiving a single invoice for all purchases.

The end result? A reduction of customer invoices from 13 to 1 on average!

B2B BNPL solutions like Two’s Trade Account also make it simple to onboard new customers. Onboarding happens in just 30 seconds and is integrated directly into existing user sign up flows for an uninterrupted approach from start to finish.

The result?  

Trade Account customers see a x18 increase in customer loyalty and x11 more orders per buyer.

Make sure to learn more about the Trade Account.

Upfront payments

Of course, the common problem prevalent across every industry using traditional trade credit is the impact of late payments. In fact, working capital access is a $1 trillion global problem. The effective management of working capital ensures that a business can function smoothly without facing cash flow gaps or being burdened by excessive debt. But if you’re constantly chasing payment, it’s an uphill battle you’re sure to lose.

With Two, you receive payments upfront allowing you to access funds sooner. This accelerates your cash flow, enabling better management of operational expenses and investments.
As Nivi Jasa from I AM NUT OK says “Two is helping us streamline our online B2B orders and cash flow operations. Every time an order is placed and processed, we get paid”. 

No credit or fraud risk

Working with third parties to run credit and ID checks is a necessity if you manage invoice purchases in-house. However, once a buyer is approved, there’s still risk involved. How do you know if the ID verification or credit checking process was comprehensive enough? Merchants operating with little fraud knowledge are often left exposed, sometimes with dire consequences. 

Two removes that risk. Two performs comprehensive credit and fraud checks then and there for an uninterrupted buying experience for your customers. 

And of course for you, that means being able to offer net terms without the stress of fraudulent orders.

Increased B2B sales

B2B BNPL solutions like Two’s E-Commerce Checkout allows you to increase B2B sales by making it simple for buyers to purchase. No additional phone calls or communication is needed because decisions are made there and then, making trade credit purchases simple.

To learn more about how Two can help your wholesale company grow B2B sales, improve cash flow, and offset credit risk, make sure to speak to one of our experts!