June 20, 2024

While the concept of Buy Now, Pay Later (BNPL) isn't novel in the B2C industry, it's gaining traction among B2B buyers, reshaping commerce.

By the numbers: A Juniper Research report found that in 2023, the B2B BNPL market reached $14 billion in spend globally. 

Why it matters: Adapting to the rise of BNPL in B2B is important as it reshapes commerce by providing businesses with an accessible and affordable credit option that could impact global spending trends.

Buy Now, Pay Later, is a type of short-term financing enabling customers to make a purchase and pay at a later date. The payment is often split across an installment period or paid off at once, usually 30 days after the purchase is made. 

Even though B2B BNPL is a smaller part of BNPL, more businesses will start using it because it offers an easy and affordable way to get credit.

By the numbers: 27% of credit professionals are offering BNPL solutions for B2B transactions, according to a recent eNews poll. Why is that?

• Cash flow optimization: BNPL allows businesses to spread payments and manage working capital more efficiently.
• Enhanced accessibility: B2B BNPL platforms have made these solutions accessible to even smaller businesses, leveling the playing field.
• Competitive edge: B2B companies are adopting BNPL to meet customer expectations and stay competitive.

Attractive BNPL features include:

• Flexible credit line
• Installment payments 
• Payment by invoice
• Subscription model

Although BNPL providers charge businesses for their services, it entices customers to spend more than they would if they had to pay upfront. Users can also acquire more BNPL loans that come with no interest or fees, in contrast to the annual percentage rate (APR) they receive on credit cards.

Yes, but: A downside of BNPL is the acquired ‘phantom debt,’ referring to BNPL loans that are often not tracked in Americans' debt assessments. 

• Afterpay, Affirm, Klarna and other BNPL providers don’t report transactions to credit scoring agencies.

Phantom debt not only complicates the credit investigation process, but it heightens financial risk for trade creditors.

• “Particularly for material suppliers, BNPL forces businesses into bankruptcy, severely impacting their cash flow,” said Nan Hannah, Esq. attorney at Hannah Sheridan & Cochran, LLP (Raleigh, NC). “BNPL also has a fixed interest rate per day, which really adds up over time.” 

BNPL allows users to start ‘loan stacking,’ or borrowing from multiple providers, complicating debt tracking and payment management for businesses. “Loan stacking can put borrowers in a position where they can’t dig themselves out of debt, and most states have a cap on how much interest you can charge per month or per year,” Hannah said.

Although marketed as fee-free, BNPL loans entail late fees and penalties for missed payments, particularly burdensome for financially distressed customers.

What credit professionals are saying: For some of those who aren't planning to adopt BNPL, it mainly hinges on company policy. “We offer invoice terms instead of payment plans,” said James Sarkkinen, CBA, credit manager at Interstate Companies, Inc. (Minneapolis, MN). “The revenue generated from our receivables portfolio is how we meet our financial obligations. If we extend terms, we would need to hit our line of credit to pay our weekly or monthly obligations.”

Extending payment terms without solid credit checks can lead to more defaults and cash flow problems.

• David Escobar, credit manager at Evapco, Inc. (Taneytown, MD), said he might consider BNPL if it fits his company’s financial strategy and does not harm their cash flow or increase their bad debt.
• “Businesses want more flexible payment options and BNPL is an attractive option that I foresee to increase in B2B,” Escobar said. “However, it depends on how well companies manage credit risk.”

Juniper’s Research recommended B2B BNPL providers focus on business types struggling with access to credit, particularly smaller enterprises to maximize their appeal. “Partnerships with key B2B services, such as B2B marketplaces and ERP (Enterprise Resource Planning) systems, will be critical to future B2B BNPL growth,” the report reads.

The bottom line: The increasing adoption of BNPL in B2B trade is reshaping commerce by offering businesses an accessible and affordable credit option, despite potential risks such as untracked phantom debt and loan stacking.

For more information, be sure to register for NACM’s upcoming webinar on Quick Loans for B2B.

The “big” win: In a decision that helps balance Subchapter V’s pro-debtor provisions, the U.S. Court of Appeals for the Fifth Circuit recently held that the Bankruptcy Code’s exceptions to discharge apply to a corporate Subchapter V debtor with a nonconsensual plan (even though the exceptions do not apply to corporate debtors in “traditional” Chapter 11 cases). In doing so, the Fifth Circuit joined the only other Circuit-level court to address the issue (the U.S. Court of Appeals for the Fourth Circuit), bucking what appeared to be a growing trend among other, non-Circuit-level courts that have held the exceptions to discharge do not apply to corporate Subchapter V debtors.

Why it matters: Since its enactment in February 2020, Subchapter V of Chapter 11 has become a useful vehicle for small businesses that are looking to reorganize or otherwise address operational issues, liquidity issues, and/or excessive debt through insolvency proceedings. Congress enacted Subchapter V to make Chapter 11 more appealing for small businesses that were previously deterred from filing due to the costs and risks associated with the “traditional” Chapter 11 process. Subchapter V has been a massive hit among eligible debtors: in 2023, nearly half of all Chapter 11 filings were under Subchapter V.

There may be a drop-off in Subchapter V filings in the immediate future because the debt limit for filing Subchapter V bankruptcy is likely to revert to approximately $3 million this Friday, June 21, 2024 (decreasing from the temporary $7.5 million limit set in 2020 due to the financial distress caused by the pandemic). However, the possibility always exists that Congress will revisit the debt limit in the future given the popularity of Subchapter V among debtors and bankruptcy professionals.

A deeper dive: Section 523(a) of the Bankruptcy Code lists numerous types of debt that may be excepted from the discharge granted to a debtor in bankruptcy. Section 523(a) states that a discharge under Chapter 7, Chapter 11, Subchapter V, Chapter 12 and Chapter 13 of the Bankruptcy Code “does not discharge an individual debtor from any debt” for, among other things, debts that arise from a fraud, misrepresentation, materially false financial statements, defalcation in a fiduciary capacity, embezzlement or a willful and malicious injury by the debtor. 

Courts have been split as to whether Section 523(a) applies to corporate debtors in small business Subchapter V cases. Although Section 523(a) specifically states that its exceptions only apply to “individual” debtors, Subchapter V’s discharge provision, Section 1192, does not draw any distinction between individual and corporate debtors. Instead, Section 1192 states that where a nonconsensual plan is confirmed, “a debtor” is not entitled to a discharge of any debt “of the kind” specified in Section 523(a). 

The U.S. Court of Appeals for the Fourth Circuit issued a decision in June 2022, in Cantwell-Cleary Co., Inc. v. Cleary Packaging, LLC, holding that Section 523(a)’s exceptions to discharge apply to individual and corporate debtors. The Fourth Circuit relied on Section 1192’s broader language, further noting that Section 1192 is phrased virtually the same as Chapter 12’s discharge provision, which has been interpreted to apply Section 523(a)’s exceptions to discharge to both corporate and individual debtors.  The Fourth Circuit also reasoned that Congress had intended Subchapter V’s small business provisions to generally apply to qualifying individual and corporate debtors alike, and Congress’ intent would be frustrated if the discharge exceptions applied to one but not the other.

In a win for creditors, the Fifth Circuit’s decision in Avion Funding, L.L.C. v. GFS Industries, L.L.C. helps balance Subchapter V’s pro-debtor provisions. The GFS Industries decision gives creditors another Circuit court opinion that sides with the Fourth Circuit’s holding that the exceptions to discharge apply to corporate debtors (where a nonconsensual plan is confirmed). As the Fifth Circuit noted, imposing section 523(a)’s exceptions to discharge on corporate Subchapter V debtors is a fair compromise in light of the benefits given to Subchapter V debtors relative to traditional Chapter 11 debtors.

Nonetheless, creditors should remain mindful of the various advantages that Subchapter V provides to debtors. For example, in Subchapter V: (i) the debtor maintains the exclusive right to file a plan, (ii) the debtor may extend payment of administrative expense claims (e.g., claims for goods sold on credit during the bankruptcy case) over the 3-5 year life of the plan, and (iii) the absolute priority rule is abrogated in that equity holders may retain their equity interests in the debtor even if unsecured creditors are not paid in full so long as the debtor contributes its “projected disposable income” to fund plan distributions over the life of the plan. The advantages for a Subchapter V debtor will have an impact on the overwhelming majority (if not all) Subchapter V cases. Therefore, it is critical that creditors monitor and vigorously protect their interests in Subchapter V cases just as they would in a traditional Chapter 11.

For more information about Subchapter V, keep an eye out for the July/August issue of Business Credit magazine.

Imagine having unrestricted access to a treasure trove of expertise, insights and cutting-edge industry knowledge right at your fingertips. Unlock a world of knowledge and professional growth for all employees, all-year round with NACM’s Unlimited Webinar Program.

By joining, you gain entry to an exclusive realm of webinars spanning a multitude of subjects, from the latest tech trends to leadership strategies. With unlimited access, you can attend as many webinars as you want, whenever you want, learning from top-notch experts and thought leaders without constraints. Whether you're looking to master a new skill, boost your career or explore diverse topics, this program offers it all.

#1 Challenge Yourself

Master all aspects of credit management and challenge yourself to learn something new. “Anybody on my team, or branch for that matter, has access to credit information no matter if it’s on construction liens, accounting or financial analysis,” said D’Ann Johnson, CCE, credit manager at A-Core Concrete Cutting, Inc. (Salt Lake City, UT). “They can also hear about real-life experiences from credit experts, ask questions and dive deeper on specific topics. The best part is there’s always something new to learn about.”

#2 Increase Engagement

Webinars can be used as a means to increase staff engagement. Heidi Lindgren-Boyce, CCE, NACM Board director and senior credit manager at Star Rentals, Inc. (Kent, WA), signed up for the program when it was new in 2021. “We were still in the throes of COVID, and our work volumes were less than normal,” she said. “We signed up in order to keep our credit staff engaged and grow their knowledge base. The variety of topics offered included those not available pre-COVID, and that was very exciting for them. They loved the freedom to sign up for programs on their own without having to ask permission each time.”

#3 Career Advancement Opportunities

The program offers opportunity for career advancement, whether it is earning CEUs for designations or learning new skills that make you eligible for a promotion. “We like to promote from within our company, so I encourage my staff to take a variety of programs that will help them grow into our future leaders and managers,” Lindgren-Boyce said. She also has staff members take specific webinars to help them study for their Credit Business Fellow (CBF) exam. “I’m happy to announce that both employees passed their CBF exams and received raises for their accomplishments.”

#4 Team Building

The Unlimited Webinar Program is a powerful team-building tool. For Johnson, the program helps generate conversation for monthly meetings and encourages staff to ask each other questions. “I use it as a secondary team-building exercise,” she said. “I have somebody in my Texas office and somebody in my Oregon office who attended the same seminar and immediately after discussed what they learned with other colleagues who may not have had the time to sit in on this conversation. This way they can share their perspective on a topic which stimulates interest to listen to the webinars which can be similar to that.”

#5 International Expansion

Trade creditors from around the world and those who extend credit internationally can expand their knowledge. Brooke Wilson, ICCE, region credit manager at Volvo Penta of the Americas (Chesapeake, VA), used the Unlimited Webinar Program as she pursued her International Certified Credit Executive (ICCE) designation. “It helped me advance in my career in that I received a promotion within my company, and it also allowed me to be more involved in certain areas,” she said. “I work for a global company that covers a large area that at one point covered almost the entire Western Hemisphere and being able to attend as many webinars as I wanted, whenever I wanted, gave me great insight into the cultural differences in the four global regions I was less familiar with.”

Peter Drucker, 'the father of management,' famously said, “The most important thing in communication is hearing what isn’t said.” Feedback remains essential to continuous improvement and competitiveness. However, current feedback systems are broken and disliked by both managers and employees. They focus on the past, feel reproachful and often lack problem-solving opportunities.

Insights-based system-wide approaches to feedback are needed now more than ever, as we have up to five generations in the workplace. Millennials and Gen Z require more novel approaches to feedback that allow for real-time, bite-size information. They need feedback that they can act on authentically, which enables them to experiment with new behaviors and see different results.

As a former Chief Marketing Officer and leadership veteran with over 20 years of experience in Fortune 500 companies and as a Leadership and Team coach, I have coined the term “healthy friction” to describe the learning opportunities we can create systemically in the workplace to foster these teaching moments.

Building a Feedback Loop offers a solution by establishing a robust feedback system that enhances performance and drives growth. Traditional feedback often serves as an annual judgment of past actions, missing opportunities for reflection, learning and future improvement. To get you started, here are three practical strategies I often use with my coaching clients to “test and learn” from to create more dynamic feedback systems that provide regular, constructive feedback.

1. From “What’s working/What’s not working” to “What will you do differently.”

One of the most effective ways to assess past performance involves a degree of introspection. Reflecting on our strategies, tactics and actions helps us understand how well we executed our plans and influenced others to contribute effectively. A popular method for this is the “What’s working/What’s not working” framework. This approach is practical when you have achieved your desired goals and are looking to optimize the process. However, it tends to focus on summarizing past events without offering a forward-looking perspective.

To truly benefit from past experiences, it’s essential to incorporate “healthy friction” or teaching moments that guide future actions. This is especially critical for younger generations, who seek on-the-job learning to address perceived gaps in their education and past work experience. Moving from simply evaluating what happened to consider “What will you do differently?” shifts the focus towards continuous improvement. Regular team reflections on successful strategies, areas needing improvement and actionable changes are crucial for fostering the right behaviors within your team. This structured reflection encourages ongoing feedback and adaptation, ensuring that lessons learned translate into future success.

2. What needs to be true for you to achieve your goals

This powerful way of thinking removes the limitations we often impose on ourselves, allowing us to understand better our constraints, as well as those of our teams and systems. This approach is especially critical when leading transformational projects where envisioning a different future and outcome is necessary.

By asking employees to consider the conditions required for their success, you empower them to shift from a defensive mindset to a problem-solving one. The first step is to identify our blind spots and the assumptions we carry. This awareness also helps leaders recognize others’ limitations and assist them in challenging their assumptions about a particular project or strategy. This process helps identify barriers and proactively seek solutions, making feedback more actionable and goal oriented.

Whether you are launching a new product, creating a new process and laying the strategic plan for your business, leaders often hear responses like, “We have tried that before, and it didn’t work,” “That won’t work for us,” or “That will make us less efficient.” These quick rejections of new strategies are common initial reactions to change, as humans tend to resist change, equating it with risk and danger. Encouraging a mindset that focuses on what needs to be true for success creates a “stop and think” moment, helping to overcome this resistance and fostering a culture of innovation and continuous improvement.

3. What-if questioning

Using imagination through “what if” scenarios allows us to explore innovative solutions. This approach is expansive and enables transformational rather than incremental change. The key is to let your imagination wander, focus externally on trends and connect the dots to draw insights.

A well-known industry example of this approach is Steve Jobs at Apple. He famously said, “Innovation distinguishes between a leader and a follower.” Steve Jobs frequently employed “what if” questioning to drive innovation. For instance, when developing the iPhone, Jobs asked, “What if we could combine a phone, an iPod and an internet communicator?” This question led to the revolutionary device that transformed the tech industry. His ability to envision what was possible, rather than being constrained by what existed, enabled Apple to create groundbreaking products.

As a coach, I often ask, “What if you had a magic wand?” to encourage creative thinking and uncover new strategies for achieving performance goals. This kind of questioning helps break free from conventional constraints and opens up a world of possibilities, much like how Jobs and his team approached innovation at Apple. By imagining different scenarios and outcomes, leaders and teams can discover novel solutions and drive significant change.

Albert Einstein once said: “Imagination is more important than knowledge. For knowledge is limited, whereas imagination embraces the entire world, stimulating progress, giving birth to evolution.”

Establishing effective feedback systems is essential for fostering performance and growth in a multigenerational workforce. By moving beyond traditional methods and incorporating strategies like introspection, forward-looking questioning and imaginative scenarios, leaders can create a culture of continuous improvement and innovation. This approach addresses the diverse needs of a multigenerational team by creating “healthy friction” that serves as empowering teaching moments. It also empowers employees to engage proactively in their development and success.

Jenny Fernandez is an executive and team coach, workshop facilitator and faculty member at Columbia University and New York University. She consults on personal leadership, employee engagement and retention and team effectiveness. Learn more about her coaching and masterclass offerings at www.jennyfernandez.com.

This article originally appeared on SmartBrief.