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How Does “Buy Now, Pay Later” Affect Your Business?

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedSept 20212 min read

The term “buy now, pay later” refers to a service that allows consumers to immediately purchase a product but delay payment until a later date. These payments are usually made in instalments that are pre-agreed upon purchase of the product, and are interest free if the payment is made within a specified term.

While this service was traditionally used by larger corporations, buy now pay later for small businesses is becoming increasingly popular. This is thanks to providers such as Affirm, Klarna and Afterpay that make it possible for all kinds of businesses. Read on to find out more about this service and how it can benefit your business and customers.

How does “buy now, pay later” work?

Buy now pay later for small business is another way to allow your customers to pay in instalments. Unlike a traditional credit card, which involves an agreement between the consumer and bank, the relationship is between the consumer and merchant (with an intermediary company) and functions almost like a loan.

Around 10-15 years ago, companies such as Klarna and Afterpay started offering these services, and they have increased in popularity as e-commerce has become more important. In exchange for offering interest-free loans to consumers, these companies tend to take around 5% or 6% of the purchase costs from retailers.

What are the benefits of “buy now pay later” for business?

Given that these companies take a cut of profits, you might be wondering why you should consider offering buy now pay later to your customers. In fact, there are various benefits, and it offers an important way for small businesses to improve growth. Some of the key advantages include:

Driving sales. Consumers feel more comfortable making bigger purchases when they are able to minimise impact and spread costs over a long time period. Of course, some people choose to save their money and wait before making a purchase. However, in the modern world, customers tend to prefer immediate results to more traditional saving.
Improve trust and consumer relationships. Customers are much more likely to return to businesses that offer buy now pay later options.
You still get paid in full, immediately, making it a win-win situation for both consumers and businesses.
Remain competitive. With so many other companies offering this service to their customers, customers may prefer to shop elsewhere if you don’t do the same.

How can the “buy now, pay later” business model help with B2B transactions?

Just as buy now pay later is a preferred payment method for many consumers, it can also be a useful tool for business owners in a variety of different situations. For example, a retail business may lack the necessary cash flow to purchase the inventory needed for a busy season, like Christmas. Using buy now pay later, the shop is able to stock up while feeling confident that they will be able to pay off the loan after a busy period of sales.

In this way, buy now pay later for business functions almost in the same way as a business loan, except it is interest free. This makes it an extremely attractive option for businesses that are struggling with cash flow.

Is “buy now, pay later” bad debt?

While there are a number of advantages to using buy now pay later for both consumers and businesses, you should bear in mind that it is a loan. For consumers, this means that they should carefully plan their purchases in accordance with their income and expected expenditure. As for businesses, it’s important to calculate projected sales and profits to ensure that you are not spending beyond your means.

Having said that, this model can be a great way to increase profits in low-risk situations. Unlike many other forms of debt, buy now pay later offers the chance to pay in interest-free instalments, provided you stick to the payment terms.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.