Business-to-business purchases are a huge part of the economy, but the way they’re typically implemented just doesn’t line up with how e-commerce is conducted.
The traditional purchasing process goes like this:
- The operations or engineering department of a business needs some widgets. So they tell the purchasing department that they need some widgets with a certain specification.
- The purchasing department sends out quote requests to one or more widget suppliers.
- The sales department of each supplier replies with a quote.
- The purchasing department picks a winning quote and replies with a purchase order (or PO) to the winning supplier. This is a legally binding document that specifies what they’re buying and at what price. These typically have an associated PO number that is unique within the buyer’s organization.
- The supplier ships the widgets. The supplier’s accounts payable department sends an invoice to the buyer.
- Some time later (as negotiated), the buyer’s accounts payable department pays the invoice.
Compare this to a typical e-commerce purchase:
- The customer finds the widget online.
- The customer adds the item to the shopping cart.
- The customer checks out and pays using a credit card or PayPal.
There’s a lot fewer steps here. It turns out, though that the traditional purchasing process has certain advantages. By having all purchases go through a purchasing department, it’s much easier to keep track of expenses. And by negotiating payment terms, the customer can take their time paying: a great help to a business’s cash flow.
Also, it turns out, many large purchasing departments simply don’t have access to a credit card or PayPal to pay for stuff. They can pay via PO and that’s it.
As a small business owner, I like the purchasing power of companies that have a traditional purchasing process, but don’t like dealing with waiting for them to pay, sending reminders when payments are due, and handling physical checks.
So what can be done to smooth out this process? How about a payment processor that deals strictly in purchase orders! The first half of the purchasing process would be the faster e-commerce model: the customer finds the widgets on the vendor website and adds them to the shopping cart. But when it comes time to pay, they can simply use their PO number.
Sending reminder emails, collecting the money, assessing late fees, and so on would all be handled by a third party. This would be the “Stripe for Purchase Orders“. Let’s call them SFPO for short.
SFPO could offer an API, much like Stripe, PayPal, etc. that would ensure that the customer is approved for purchase orders. The API would do typical payment processor stuff, like providing a form, registering a sale, and so on.
SFPO could also provide other valuable associated services, like running credit checks on companies who want to pay via PO.
You could cobble all of this together yourself, but if you’re a small shop, why would you want to spend time chasing after customers to pay, when you could be building your business?
This is potentially a HUGE business as it touches many of the high dollar business to business transactions. If you build this, please let me know.