A significant mindset shift is expected from business leaders, from cautious optimism in 2024 to decisive action in 2025. More than half of CFOs expect their organization’s profitability to increase this year, according to a BDO survey, with access to credit a key factor in meeting business growth goals. This was demonstrated by the fact that banks reported stronger demand for commercial and industrial loans in the fourth quarter of 2024.
It’s true that traditional lending measures remain a cornerstone of enterprise banking relationships, but the industry faces mounting pressure to modernize its commercial offerings and adapt to changing market dynamics.
It isn’t always easy for borrowers either. Analysts from S&P Global believe the easing in financing conditions for U.S. borrowers in 2024 may have stalled as many issuers faced maturities of large amounts of debt they issued during the pandemic. Financial institutions must navigate an environment where uncertainties around inflation, interest rates and monetary policy have made traditional lending less attractive to enterprises. At the same time, this market uncertainty doesn’t diminish a company’s need for a financial infusion or innovative services to manage cash flow and support their own customers’ purchasing preferences. This leaves enterprises at a crossroads, unsure of how to fuel their growth.
Banks, of course, will continue to lend money – a core offering. But there is an opportunity to add other lending-based services to enterprises that drive revenue and value and reach new commercial customers.
Understanding business customer preferences
Banks must consider how the enterprises they serve can best meet the needs of their own customers. In these B2B transactions, research shows that business buyers strongly prefer extended payment terms when making purchasing decisions. This preference stems from several factors including the ability to drive customer loyalty, close larger deals and better manage working capital. Extended payment terms, typically ranging from 30 to 90 days, have become a standard expectation in B2B transactions, particularly in industries like manufacturing, retail and transportation.
Business buyers are also seeking technology that combines purchasing, invoicing and net terms management. This convenience is critical and banks can step-in to help ensure their commercial clients can respond to these payments preferences. Afterall, 80% of global B2B buyers having said it’s very or extremely important that the enterprises they do business with can easily integrate with their ERP platforms.
By evolving their service offerings to combine traditional banking services, with modern financial technology solutions, financial institutions can address these buyer preferences. Enterprises can then offer extended payment terms to their customers while maintaining healthy cash flow through immediate payment options from their banking partner.
Managing risk and working capital
Businesses are often reluctant to extend flexible payment terms as it requires a strong balance sheet, quick and accurate credit evaluation and careful risk management procedures. It’s often not an option, especially with added market uncertainty. By outsourcing this payments capability to a banking partner, enterprises can offload the risk of non-payment and non-compliance. The bank’s client can take advantage of improved Days Sales Outstanding with guaranteed settlement schedules, while reducing resourcing and costs associated with a non-core task.
Banks can also leverage real-time data and automation to help business clients optimize their working capital with predictive cash flow management and automated invoicing. This added support will likely replace clunky or manual accounts receivable processes and ensure timely invoice payments to improve cash flow. Outsourced payments technology can also enable scalability and global operations, as it provides the expertise to handle multiple currencies and regulatory requirements across jurisdictions.
Keeping up with technology
Financial institutions must keep up with technology innovations to best serve their clients. The embedded finance market is projected to grow rapidly in the coming years, with a CAGR of 21.3% from 2024 to 2033, according to Allied Market Research. This includes embedding financial services, such as payments and lending, into non-traditional financial platforms, so commercial clients can conveniently access financing solutions with minimal friction. Advanced payments and invoicing automation are possible with a composable tech stack that incorporates a flexible API strategy that supports ongoing updates. This is important to building core B2B functionality that can safely adapt with changing client preferences or needs. In fact, 42% of CFOs say inadequate technology is a top risk management challenge this year.
Getting started
Successful implementation of new lending-based services requires financial institutions to first evaluate their existing technology infrastructure and identify gaps in their commercial service offerings. This assessment should consider their capability to provide real-time data access, API connectivity, preferred checkout options and automated workflows. The next phase involves developing technology capabilities through internal development or strategic partnerships. Many banks find collaborating with fintech companies can accelerate their ability to offer innovative solutions while maintaining the security and reliability expected of traditional banking institutions.
Banks that can deliver integrated solutions addressing both traditional lending needs and modern operational requirements will establish themselves as leaders. Banks that fail to evolve will risk becoming marginalized as only capital providers, while those embracing digital transformation can build deeper, more loyal relationships with their enterprise clients. The future belongs to institutions that can maintain the trust and stability of traditional banking while delivering the innovation and agility demanded by modern enterprises. By combining traditional lending expertise with modern digital capabilities, banks can create comprehensive solutions that address the full spectrum of enterprise financial needs, from working capital management to customer payment preferences.
Brandon Spear is CEO at TreviPay.
