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What Is Buy Now, Pay Later for 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 editedApr 20222 min read

Buy now pay later (BNPL) is a useful way for customers to spread out the cost of their purchases, without having to pay any extra interest. It’s becoming an increasingly popular way to shop, with a host of BNPL companies now offering this as an option. Afterpay, Zip, Humm, Openpay and Klarna are all buy now pay later Australian companies offering BNPL as an option.

In this post, we’ll discuss the BNPL model and how it works, as well as the advantages of this payment option.

What is buy now pay later?

Buy now pay later refers to paying for items or services via interest-free credit. Compared to paying for goods via credit card, this presents a more cost-effective way to shop, which is why so many people are switching from credit cards in favour of BNPL.

Interest-free BNPL providers allow customers to spread the cost of their purchase over a set timeframe, for example, eight weeks to three months, so that rather than having to pay a large sum up front, they can better manage their finances.

How does buy now pay later in Australia work?

BNPL works in a similar way to the interest-free deals offered by many Australian retailers that allow customers to delay their payments on purchases. The chief difference with buy now, pay later is that a third-party provider is involved, with customers borrowing from a BNPL provider, with the option to buy from a range of stores, rather than just one.

Most BNPL providers charge retailers a small fee per transaction, which is how they are recompensed. Many retailers are happy to pay this fee in order to remove the chief barrier to closing a sale, allowing customers to purchase an item even if they have insufficient funds at the time.

Interest-free platforms also make money by charging for late payments. Repayments are deducted automatically from a nominated account or card – if insufficient funds are available, a customer is automatically charged a late payment fee. These fees can range from $2 to $12, although some buy now pay later Australian companies can charge higher fees.

The advantages of using buy now pay later

The growing popularity of buy now pay later Australia is down to a combination of the following factors:

With BNPL there’s no card involved, and credit checks aren’t required. Users can simply open an account with a provider before or during a transaction, then wait for approval, which generally takes a couple of minutes.
Purchases are made in instalments, meaning that customers may be able to afford items that they wouldn’t previously have been able to buy.
There’s no need to go online or visit a bank to set up payments, since they’re deducted automatically from the account registered during the application.
There are no interest charges, just fees if payments are late.

Disadvantages of buy now pay later Australia

While BNPL represents a convenient option, there are disadvantages if used irresponsibly:

High late repayment fees are charged if payments are not made on time. This can add up to a significant amount, depending on the BNPL provider used.
Payment dates are not often up for negotiation either. If insufficient money is in the account, late payment fees are charged for each day until payment is made.
There are no credit checks, which can lead some to abuse the system. This can be a hassle for businesses, and on the customer side, it can affect their credit history going forward.

BNPL can be an attractive option for both retailers and consumers, as long as it’s used wisely.

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.