B2B Buy Now Pay Later: A Comprehensive Guide
It’s difficult as a business owner to balance purchasing the items that you need to grow your business against the capital you have available to you. In the ever-changing financial landscape, businesses are increasingly leaning on alternative financing solutions to tackle this issue. One such innovation gaining momentum is buy now, pay later (BNPL).
Let’s take a deep dive into the world of BNPL loans and learn the intricacies of what makes this payment method a boon for the modern business owner. We’ll explore:
What buy now, pay later is
How buy now, pay later plans work
How B2B buy now, pay later works
The response to B2B buy now, pay later so far
How BNPL companies can help your business as a purchaser
How BNPL lenders help vendors
If there are any risks associated with buy now, pay later
How buy now, pay later might further develop in the future
Plus, discover how Backd can empower your business with its groundbreaking new embedded finance tool, BackdPay.
What Is Buy Now, Pay Later?
Buy now, pay later is a form of short-term financing used by consumers and businesses to purchase goods and then pay for them over a few weeks or months, usually in equal installments. It’s actually a payment method that can be traced back to the 1840s when retailers allowed high-value in-store purchases like furniture or farm equipment to be paid off in weekly or monthly installments.
The rise of fintech in the late 2010s saw this way of paying for goods return. Its use accelerated in the following decade due to catalysts like the COVID-19 pandemic and consumers looking to spread out the cost of shopping as they battled against the high rate of inflation.
So, fast-forward to now and what is the state of BNPL loans today?
Like its 1840s predecessor, you can still use buy now, pay later loans to purchase high-ticket items. However, most consumers now use BNPL for much lower purchase amounts as well. For example, Zip, a B2C BNPL app, allows customers to set up a payment plan for their DoorDash purchases, and Klarna can be used to make Instacart purchases.
BNPL is regularly seen as a payment method alongside Mastercard, Visa, and Discover at in-store retail points-of-sale as well as through online checkouts.
How Does BNPL Work?
Like with most loans or credit products, you need to apply to use a BNPL service, but an approval decision will be made instantly. The application process may involve a soft credit check, which means it won’t be reported to the credit bureaus, won’t appear on your credit report, and won’t affect your credit score.
With most BNPL plans, once you’ve been approved, you’ll make an immediate first payment, or down payment. You then make equal installments according to a set payment schedule. The time between payments can vary depending on the lender. Some will require weekly or bi-weekly repayments, and others will seek monthly payments.
As a condition of eligibility, many lenders require borrowers to make repayments directly from a bank account or credit card via autopay.
You will need to check with your BNPL lender to see if they charge interest, installment fees, or late fees. Most consumer BNPL providers offer interest-free payments as long as you meet your due dates. But if you make a late payment, you may be subject to a fee and/or accrue interest according to a predetermined annual percentage rate.
How Does B2B Buy Now, Pay Later Work?
You may be asking yourself, “Are there any differences between the B2B and B2C models of buy now, pay later?” The truthful answer is that they are both very much the same at the base level. Both allow you to make a purchase today while holding on to your capital, and both require the intervention of a third-party provider in order to make the purchase.
In the B2B space, you may find that there aren’t currently as many buy now, pay later providers, due to this being a newly adapted concept in this market, but it largely works the same.
Let’s use BackdPay as an example. Say you are shopping for new office furniture to give your office a facelift and impress potential partners, clients, or investors. You would shop as usual up until you get to the checkout, where instead of entering payment details you would select “BackdPay.” With invoices, the process largely works the same, with a link or QR for BackdPay being provided directly within the invoice.
From there, you would complete an online application process and select the preferred payment terms that work best for your business. The terms may come with fees depending on how long you choose to pay off your purchase. For instance, BackdPay lets you finance your purchase over three, six, or 12 months.
Following your successful application, Backd will pay the vendor your full invoice while you start to make payments until the purchase is repaid with any interest in line with your terms. This is an example of where B2B BNPL can disrupt more traditional funding options like equipment loans.
The B2B buy now, pay later process may not be specifically tied to any specific industry, and the options really are endless in regard to purchasing and holding onto your capital.
What Has Been the Response to B2B Buy Now, Pay Later?
The reception of buy now, pay later’s arrival in the B2B marketplace has been a warm one, with PYMNTS closing 2022 by hailing it as a “hero product” for businesses who need to strategically conserve their financial flexibility heading into the new year.
A 2021 C+R study found that 60% of consumers had used some form of buy now, pay later service. With this trend quickly growing in the consumer market, it was only a matter of time before it made its way into the business space so that entrepreneurs could utilize it to hold off on using their hard-earned capital to invest further into their businesses.
Financial Executives International examined the embedded finance trends for 2023 and stated that “as the adoption of embedded finance solutions continues to grow, it is expected to become the norm in the financial services industry, transforming how we interact with financial services for years to come.” This article highlights buy now, pay later specifically, stating that recent studies show that most small business owners “have less than $5,000 on hand for financial crises. In our current difficult economic period, businesses can use BNPL as an embedded finance product to gain a competitive advantage by securing missed sales and stretching invoice payments for better cash flow management.”
B2B buy now, pay later seems to be quickly establishing its place in the market, with several fintechs stepping up to provide buyers and sellers with increased flexibility. Although, U.K.-based B2B buy now, pay later provider Kriya published research on January 4, 2023, stating that “many e-commerce operations do not plan to offer Buy Now, Pay Later terms to their customers for another three years, despite 92% knowing what Embedded Finance is, and how it helps accelerate their revenues with more sales and 5x higher order values.”
It may take some time for the mass market to warm to buy now, pay later; however, those who are already utilizing it are seeing increased profits, order sizes, and higher levels of customer satisfaction.
How Can Buy Now, Pay Later Help My Business as a Purchaser?
Buy now, pay later is ripe with benefits to help business owners retain control of their capital to further invest in and take their enterprise to the next level. The most prominent advantage to using buy now, pay later as a payment method is that it allows you to keep your capital within your grasp, rather than spending large amounts of it on expenses and items that your business may need. This allows you to keep capital stored away for emergencies or even to inject it back into other aspects of your business.
Buy now, pay later also helps to stretch out purchases that your business may not be able to afford in one payment. BNPL for small businesses provides entrepreneurs with the opportunity to grow and scale with the equipment they need. It also allows them to contend with the larger competitors in their area, which can afford to drop large amounts of capital at a single moment in time.
For instance, say that your business needs new Macbooks, this can be a costly purchase upfront, but over time the burden is lessened allowing you to make the purchase without taking an immediate blow to your capital.
Holding onto your capital for longer is never a bad thing; it comes down to a simple preference of whether you would rather spend a large sum of money now or hold onto it and spend it over time. The answer to that question comes down to the needs of your business, which are always paramount to success in the future.
How Has Buy Now Pay Later Helped Vendors?
When checking the success of a financial product, it is important to look at market examples, and buy now, pay later is tied to many success stories in the B2B space. While buy now, pay later is new in the B2B medium, many European fintech companies got a jump on the market in their area and have been providing the service for close to a year now.
Norway’s number-one Apple Premium Reseller, Eplehuset, utilized B2B buy now, pay later services offered by Two to provide their customers with a financing option that was efficient and convenient. Their sales increased by so much that they had to actually reject 52% of their B2B customers. This was accompanied by a 16% year-on-year growth of their AOV orders, meaning they were more likely to see larger orders from their customers.
Ankorstore, a European wholesale B2B marketplace that connects 12,000 independent brands with more than 200,000 boutiques, utilized the services provided by the London-based B2B buy now, pay later platform Hokodo. This gave customers the flexibility to make the purchases they needed. They also saw an increase in their AOV as well as an increase in the frequency of purchases. Ankorstore Chief of Staff, Pierre-Luc Joffre also mentioned a sentiment of having this type of flexible payment option that provides customers with what they want.
With European B2B BNPL service providers establishing a trend of a product that exists to help business owners succeed, it is only a matter of time before we start to hear success stories on this side of the pond. B2B buy now, pay later is rapidly growing within the United States, and early adopters are sure to see many benefits — from a spike in sales to increased customer happiness.
Are There Risks Associated With Buy Now, Pay Later?
No financial product is without its risks, but buy now, pay later comes with a minimal amount that is shared by all three parties involved:
The buyer: The main risk to the buyer with a BNPL plan relates to their self-control and overspending. The key to using buy now, pay later successfully is to avoid making a large number of reckless purchases that they may struggle to pay back in the long term. Defaulting on your payments for purchases comes with detriments that could stay with you and your business for a very long time.
The vendor: The vendor avoids all risks associated with the payment of purchases. Regardless if the buyer defaults on their payments to the third party, they will have been paid at the time of the transaction. The main risk associated with the vendor is more aligned with having less emphasis on the calculation of inventory. You want to ensure that you are accurately accruing inventory to meet the seasonality of demand while not buying to overstock inventory in slower periods.
The third party: The third party takes on the highest risk in terms of the buy now, pay later model, as they provide the vendor with the money for the purchase upfront and could be at a loss if the buyer defaults on the payments. This may differ among buy now, pay later providers, so it is always important to view the stipulations of your contract with the third party.
How Could Buy Now, Pay Later Further Develop in the Future?
As time goes on, buy now, pay later in the B2B space could mirror the growth of its counterpart in the B2C market. This is a market that was projected to grow its users by 56.1% year over year by the end of 2022, according to Insider Intelligence. The B2C buy now, pay later market was estimated to be at a value of $6.13 billion in 2022 and is expected to register a compound annual growth rate of 26.1% from 2023 to 2030.
Currently, buy now, pay later is quite lax in regard to regulation, but this could change over time. The U.S. Consumer Financial Protection Bureau (CFPB) announced in 2022 that they had plans to start regulating buy now, pay later companies in order to ensure that consumers are protected.
These plans seem to be directly targeted at buy now, pay later companies that operate in the B2C sector, like Klarna, Sezzle, PayPal, AfterPay, and Affirm. The regulations are said to be akin to those that are standard with credit card and debit card companies. Regulation is not something to be feared in the sector though, as it could bring with it a reputational boost to buy now, pay later providers.
It seems that buy now, pay later is not just a financial fad and could be around for the long haul. With consumers utilizing it to fight constantly rising inflation costs, business owners are well within their right to do the same. If moves to regulate the industry are followed through on, then this could be a win for buyers utilizing the system, as an already great tool could become safer to use.
Flexibility in the B2B market is something that should be strived for and celebrated, as this evens the playing field for small and medium-sized business owners to compete with larger companies that have more expendable capital readily available to them.
Get Backd Now and Pay Later With BackdPay
At Backd, we understand that a need for capital is a reality for so many business owners. It’s what we were founded on and what continues to drive us. We know that traditional financing solutions don’t always help meet the needs of businesses across the country, and that’s why we continue to expand our offerings to help support your business.
Do you want to increase your sales while providing embedded financing to your clients? Then consider offering BackdPay to your customers! BackdPay is the newest way to offer B2B BNPL to your customers and gives you the chance to grow your customer base by 30% while getting paid instantly. Backd will even reward you with up to a 1% fee for any funded transactions.
Backd offers competitive rates in the B2B buy now, pay later market with terms of three, six, and 12 months. Whether you’re looking to hold onto your capital or you’re a vendor looking to offer your customers the flexibility that buy now, pay later can bring to your business, don’t wait to take advantage of it.
Find out more today about how you can provide your customers with financial flexibility with Backd at no cost to your business.
