As technology has become increasingly sophisticated over the years, more people and businesses are turning to e-commerce and other online payment methods to make purchases. This was especially true when the COVID-19 pandemic hit, which forced a vast majority of business-to-business (B2B) buyers and sellers to go digital. In fact, according to a study done by McKinsey, over three-quarters of B2B buyers and sellers admit to preferring the new digital landscape, rather than face-to-face interactions and sales. Moreover, these patterns are likely to remain in the near future. As such, there is no doubt that taking business and ordering things online is now the new norm that companies need to get the hang of.
As such, in order to make your products attractive to online customers, businesses need to adapt to their buyer’s demands. This may mean offering other types of purchasing and payment solutions to keep up with the competition. One such option is Buy Now, Pay Later (BNPL). Unsurprisingly, large conglomerates such as Amazon and PayPal are getting on this trend and offering it as part of their digital online services.
But what exactly does BNPL entail, and why should businesses choose to offer this payment method? What kind of benefits does it bring? In this article, we tell you all about it, and why BNPL is here to stay.
What is Buy Now Pay Later
Much like its name suggests, BNPL is a type of short-term payment option. This means that customers can make purchases, and then pay them back at a later date. Even better, is that BNPL allows for interest-free payment. As a result, buyers can delay their payments or spread them out over a period of time, whilst the seller can get paid straight away. BNPL is also known as a ‘point of sale installment loan’ as customers typically need to make an upfront payment first before paying the remainder off, usually in installments. Not shockingly, this payment option has skyrocketed – according to research done by Exploding Topics, the BNPL market is worth over $150 billion, and there are currently 360 million BNPL users worldwide. By 2027, it is estimated that there will be 900 million BNPL users, which is an increase of 157%!
How does it work?
So, how does BNPL, work? Well, it might actually vary depending on the business or financial institution you are using. Each company and business has its own terms and conditions, so you must make sure to always read the fine print and understand the risks involved. That being said, they do generally operate similarly. Usually, at checkout, a typical process might look something like this:
- A buyer selects an item into their checkout basket
- When clicking payment methods, they pick BNPL
- You may have to enter some personal details with your BNPL provider. Your provider will then run a soft credit check so they are assured you will pay back the loan
- If you are approved, you either (depending on the retailer) do not need to pay anything – or you make a small down payment (for instance 25% of the original purchasing price)
- The order is processed as if you made a normal online transaction, and any goods are delivered
- Your BNPL provider will then tell you how much you owe, and when you need to pay it back (for example, 30 days or 60 days)
- You then pay off the remaining amount (which is interest-free) either through bank transfer, credit card, or check
In a way, you can argue that BNPL is very similar to credit cards. However, one big difference is that for a credit card, you technically only need to pay back the minimum payment on each card every month. Interest will then be added to your remaining amount until you pay it off in full. On the other hand, BNPL does not charge interest or fees. However, their payment schedule is pretty fixed, which you will be told about upfront. Moreover, it is also important to remember that not every purchase is available for BNPL. That being said, BNPL is still a popular option for making small purchases online.
Benefits of BNPL
BNPL does offer a lot of benefits when it comes to B2B businesses. This is because, in the B2B world, extended payments are typically expected. You or your customers most likely need to wait for 30 to 60 days when it comes to making purchases. However, say that you need to pay a supplier right away at this moment. But if you do so, you might run the risk of making your cash flow unstable. For instance, recently, many small businesses were waiting to get back their money which was tied up in invoices. This can negatively impact your business – especially if you are planning to reinvest back in it, in addition to putting extra stress and pressure on employees.
This problem is mitigated when using BNPL. Instead of being limited by cash, BNPL can let owners expand their businesses faster. Businesses also have more control using this payment method – they do not have to rely on other facilities or commit to certain financial institutions.
Other benefits of using BNPL may include:
Simplifying the checkout process: Most buyers tend to abandon their checkout carts because the checkout process takes too long. This is most likely due to manual credit checks or having to set up an online account to buy from a certain business. Fortunately, BNPL shortens this process by automating credit and fraud checks. This means buyers do not have to spend time making an account or using their credit cards to purchase a certain item.
Less admin work: Most businesses unfortunately spend a lot of time managing their payments. This does not include other tedious tasks such as credit checks, onboarding, chasing late invoices, or setting up accounts. With BNPL, a BNPL provider takes care of all these tasks, so businesses can use their manpower and resources more efficiently.
Get paid on time: For a vast majority of companies, on average it can sometimes take up to 53 days from when you issue an invoice to when you get paid. That is a long time and can severely hurt your business if most of your customers do not pay on time. Some businesses may not even get paid for close to two months! Companies therefore no longer need to worry about this hassle with BNPL, because they get paid straight away, with the BNPL provider taking on the risk of late payments instead.
