Alibaba introduces Payment Terms, free trade financing for SMBs

COVID-19 has wreaked havoc on small, brick and mortar businesses. Alibaba isn't slowing down, though. The B2B ecommerce marketplace is growing aggressively as business moved online during the crisis.

Today, Alibaba is launching Payment Terms, a new trade financing solution. Small business generally have to pay in full for goods before they are shipped. Payment Terms helps small business buyers extend payment terms up to 60 days on their purchases.

"Alibaba Payment Terms is a breakthrough in cross border financing," said John Caplan, president of North America and Europe at Alibaba.com, at a private briefing before the launch. "We are digitizing trade financing for SMBs. It’s a substantial step ahead because cashflow is the lifeblood of American small businesses during this complex time."

To use Payment Terms, qualified businesses can place an order with any participating supplier on Alibaba.com, receive an invoice during shipment, and have up to 60 days to pay. Depending on the contractual terms with the supplier, a deposit amount – typically 30% of the total order value – may be required at the time the order is placed. The remaining balance is due within 60 days of invoice issuance.

Necia Boston is founder of Greenville, N.C.-based B.A.A.B.S. Beauty, a makeup and beauty products retailer and early applicant of Payment Terms. She's been buying from Alibaba since 2017. Before COVID-19 hit, she sold her products via a brick and mortar store and onlin The crisis forced her to close her store, impacting 50% of her revenue.

“We typically pay our suppliers upfront, which ties our cash up in inventory costs and keeps us from planning very far ahead and investing in our business,” she said. “With Alibaba.com Payment Terms, we can compete with the big boys and have enough cashflow to start planning for the holiday season in June."

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For a small business to qualify for financing, Alibaba uses external and internal data. Alibaba uses data from US partner MSTS to approve buyers and establish their credit. That data is buttressed by proprietary Alibaba data of buyer activity on the platform.

"Buy-now, pay later" financing has been popularized in retail by firms like Affirm and Klarna. Trade financing between businesses has also seen a flurry of activity. Bluevine, Fundbox, and Behalf are all digital players with solutions in the market.

Small businesses are generally challenged to tap financing when they need it. “While SMBs often have difficulty getting trade financing from banks, Alibaba.com’s Payment Terms provides the working capital they need to fuel their growth,” said Caplan.

“This is possible for Alibaba.com because we know the buyers and sellers on our platform, and financing is offered for transactions that we know are real."