In B2B sales, it’s standard practice for sellers to offer customers deferred payment terms. Often known as net terms or trade credit, this arrangement lets customers buy goods or services and delay payment until a specified date. Net terms define the time frame for settling the invoice, such as "Net 30," where payment is due within 30 days. While this offers buyers a financial advantage, it can strain the seller’s cash flow, potentially affecting their daily operations. To mitigate this issue, some sellers turn to invoice factoring as a potential solution.

Invoice factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party—called a factor—at a discount. This practice provides businesses with immediate cash flow, allowing them to meet short-term financial needs without waiting for customers to pay their invoices. 

How Invoice Factoring Works

1. Invoice is issued: A business provides goods or services to its customers and issues invoices with payment terms typically ranging from 30 to 90 days.
2. Selling Invoices to a Factor: Instead of waiting for customers to pay, the business sells these unpaid invoices to a factoring company.
3. Immediate Cash Advance: The factor advances a significant portion of the invoice value (usually between 70% to 90%) to the business upfront.
4. Collection of Payment: The factor takes over the responsibility of collecting payments from the business's customers.
5. Final Payment: Once the customer pays the invoice, the factor remits the remaining balance to the business, minus a fee for the factoring service.

Types of Invoice Factoring

Recourse Factoring: In this scenario, the business remains liable if the customer fails to pay the invoice. If the customer doesn't pay, the business must buy back the unpaid invoice or replace it with another.

Non-Recourse Factoring: The factor assumes the credit risk. If the customer doesn't pay due to insolvency, the factor absorbs the loss. Non-recourse financing usually has higher fees.

Advantages of Invoice Factoring for the Seller

• Improved Cash Flow: Provides immediate funds to cover operational expenses, payroll, and other costs.
• No Debt Incurred: Unlike loans, factoring doesn't create debt on the balance sheet.
• Outsourced Collections: The factor handles the collection process, saving time and resources.

Disadvantages of Invoice Factoring for the Seller

• Cost: Factoring fees can be higher than traditional financing options.
• Customer Perception: Customers may prefer dealing directly with the business rather than a third-party factor.

Buy Now, Pay Later for B2B: An Alternative to Net Terms and Invoice Factoring

Buy Now, Pay Later (BNPL) has surged in popularity in the consumer market, thanks to companies like Afterpay, Klarna, and Affirm, making it a key feature of online shopping worldwide. This model allows consumers to buy goods or services immediately and defer payment, often interest-free for a set period. BNPL is now entering the Canadian B2B space, providing an appealing alternative to traditional financing methods.

In the B2B space, BNPL provides buyers with benefits similar to net terms, enabling them to defer payments and preserve cash flow. For sellers, BNPL functions much like invoice factoring, allowing them to receive immediate payment while shifting payment risk to a third party. Moreover, B2B sellers have the option to either cover the BNPL provider’s fees or pass them on to buyers, a benefit that isn’t available with invoice factoring.

Introducing: Tabit Buy Now, Pay Later for B2B

Tabit, powered by Merchant Growth, is Canada’s first B2B Buy Now, Pay Later solution. Since 2021, Tabit has aimed to bring the convenience of the consumer buying experience to B2B transactions. Backed by Merchant Growth's decade-long experience in providing financing to thousands of Canadian small businesses, Tabit now partners with over 200 businesses across the country.

Tabit is a versatile omni-channel solution with two key offerings: Tabit for eCommerce and Tabit for Invoices. The eCommerce option integrates smoothly into the checkout process for online businesses, while Tabit for Invoices is tailored for businesses that don’t have an online checkout system.

Tabit for eCommerce

The eCommerce solution, tailored for online businesses, smoothly integrates Tabit into the checkout process. Customers can choose Tabit at checkout, where they’re guided through a quick application that takes just a few minutes. Instant pre-qualification provides them with loan term options, including interest rates and payment schedules.

Tabit for Invoices

Tabit for Invoices is built for businesses without an online checkout system. In this process, the seller provides the buyer with a unique link to apply for Tabit financing. Once approved, the buyer uploads their invoice to the online portal, and the seller receives payment. In both cases, buyers can check their credit limit beforehand using Tabit’s pre-qualification feature, and sellers are always paid within one business day.

Benefits for Buyers 

• As low as 0% interest
• Automated one-time application
• No collateral required as security
• Flexible payment options available, for improved cash flow

Benefits for the sellers

• One-time integration for eCommerce sellers: Tabit integrates with numerous commerce platforms—just add it once and it’s ready to go. Open APIs are available for custom in-house builds.
• No technical setup needed for the invoice solution: simply log in to your portal and send payment links.
• Boost your cash flow: receive payment the next business day for any sales made through Tabit.
• Drive growth: increase order value and purchase frequency.
• Remove risk: Tabit handles all fraud and credit risks.
• Centralized dashboard: manage all your Tabit transactions, track payments, and gain valuable insights on your customers.

Get started with Tabit today

Learn how Tabit can support your business by booking a demo today.