Pros and cons of the Buy Now, Pay Later for businesses

Buy now, pay later (BNPL) services allow you to purchase a product and pay for it at a later time. These payments are usually made in instalments according to a pre-agreed schedule, and no interest is payable when full payment is made within a specified term.

You can use such a service to purchase a new pair of jeans, pay your energy bill or even fund the cost of installing solar panels in your home. Recently, some BNPL platforms have extended the same facility to small business owners who can use the service to pay for their business purchases and get a few months interest-free on the transaction amount.

What are the benefits of BNPL for retailers and B2B suppliers?

BNPL has become massively popular with consumers who can access small amounts of unsecured credit (mostly through a mobile app) to complete purchases they might not have made otherwise. There's generally no fee or interest charged for customersbuyers using the service, but retailers offering a BNPL service must pay a transaction fee on every purchase. Despite this, more and more retailers are partnering with popular BNPL platforms, irrespective of the fact that merchant fees for BNPL solutions can be higher than those of traditional credit providers.

As the popularity of BNPL services grows, especially with Gen Z and millennials, not offering a BNPL service could loselead a business to lose these potential customers, particularly one in the eCommerce space. That's because BNPL makes it possible for customers to complete purchases they otherwise would not proceed with if they had to pay upfront.

Besides its popularity in retail, BNPL is also making inroads into the B2B sector. B2B suppliers often suffer from long payment cycles that disrupt cash flow and lead to working capital issues. With a BNPL platform like Spenda, a B2B supplier can convert orders into cash immediately while offering buyers flexible payment terms for orders up to $20,000 per month.

Another service, Cloudfloat, allows small businesses to pay their invoices up to $2,000 in fortnightly instalments spread over 30, 60 or 90 days. Even though the service provides buyers with several weeks to pay an invoice, the supplier is paid on time, and the BNPL service takes on the buyer's credit risk.

Cloudfloat doesn't charge any interest or account-keeping fees to buyers. However, a payment processing fee applies to each invoice paid to the supx`plier. Some suppliers may opt to pay this fee on behalf of their customers to drive more sales while ensuring timely payments.

Is there any downside for retailers or suppliers using a BNPL service?

If you are a business owner looking to drive sales by adopting a customer-centric approach, you may benefit from partnering with a BNPL service to give your customers the option to spread their costs. However, it's worth comparing the fees charged by various platforms for this service and the total spending limit allowed to each customer in order to select an option that fits your business model.

Integrating new payment methods into your existing system could also lead to additional set-up costs, depending on the technology you are currently using. Even though most BNPL platforms claim to be compatible with commonly used POS systems and payment gateways, it's worth checking whether your billing platform is part of the list, so you don't have to worry about implementation hassles or costs.