What could be better than buying everything on your wishlist without having to clear the bill instantly? It sounds too good to be true!
You can get all you want; the dress you have been eyeing for ages, the necklace for your anniversary dinner, that one business machine your production urgently needs. You can have everything you desire without feeling the pressure and burden of going broke for the rest of the month. Sure, it sounds like a dream:
- You are getting the things you have always wanted to buy without fearing the credit card bill
- You’re trying to use the card responsibly while working to build your Equifax credit score simultaneously
- There’s no Sword of Damocles hanging over your head urging you to pay the amount from your credit or debit card right then and there
Imagine how beneficial it can be for your small business if the ‘Buy now, pay later’ is actually a truth, as experts say.
- Perks: You can purchase the materials and office essentials whenever you need them without fearing the budget or funding
- Downside: Is there any catch to it? Can it benefit your small business without any hidden agenda?
Let’s find out together!
Buy Now, Pay Later: An Overview
As the name suggests, it is a model that includes buying now and paying later methodology. A consumer can benefit from this model by purchasing the item on the spot but making the payment in installments later. However, the BNPL (Buy now, pay later) concept isn’t limited to individuals only. Businesses can significantly profit from it and transform their small-scale company into large-scale organizations.
“You can purchase the item now but delay the payment for later!”
This is the literal definition of BNPL one can easily understand. However, you can’t always depend on budgeting or production expanding tips to make your business successful. Yes, they usually work perfectly. Still, there’s a whole lot more discussion about the investors, funding, employees, and workload that goes into it. So, to help out the small-scale firms, digital companies like PayBright or AfterPay partner with the owners to help their case.
How Buy Now, Pay Later Works?
The use of BNPL has been increasing enormously in the consumer world. Individuals and business owners love all the benefits the model provides them personally and professionally. Yet, most commoners find it hard to understand how it actually works. Therefore, they were inclined to use the service but preferred to skip the entire purchase due to the complicated BNPL working.
- For individuals: You skip the purchase and thus lose the product you’ve been waiting to go on sale
- For Businesses: Alas! You just lost a potential customer that could’ve been a regular in the future
A study by Maurie Backman discloses that 53% of people are interested in using BNPL. However, among those above 10% were afraid of the service as they didn’t know how it actually worked or how to use it for their benefit. Of course, the survey must have included the individuals from the buyer’s point of view and the business owners from the seller’s point of view.
Let’s read how it works so that you can be among the 56% of people who used the BNPL service and benefited from it:
- Buy now, pay later lets the consumer purchase the item online (or in brick and mortar stores that offers BNPL service) via a BNPL payment method
- If you choose the BNPL option, you’ll typically see an installment period of usually 1-6 weeks with 4 payment divisions (the payment period might differ as per the app and the business policy)
- For instance, you own household items selling business online with the BNPL payment included at the checkout. So, when a consumer buys a certain item, say for $360. The BNPL will allow him to do the transaction in 4 installments. He’ll pay the $90 to deliver the item and pay the rest as per the bi-weekly, monthly, or weekly payment option he chose.
So, if we say it’s similar to a personal loan but with more benefits, it won’t be wrong. As it is similar to a loan, it might also charge you an interest fee. However, usually, the retailer offers an interest-free payment period and will only charge the extra fee if you fail to clear it on time.
How Can BNPL Benefit Small Businesses?
Yes, a buy now, pay later strategy has quite some perks for a consumer, but how can a small business make its best use? By becoming a buyer itself! Huh? Didn’t get it? Let us explain:
- You run a small clothing brand online. Yes, you sell different items, but you must have bought the materials somewhere to make it to the customer, right? So, for the material seller, your brand is also a client!
Here’s a thorough analysis by Marlin Solutions on advantages a small business can have using the BNPL:
1. Manage Your Cash Flow
Cash and funding are by far the hardest things to manage in a small business. Like there’s so much to buy to run your company smoothly that almost every penny you have for your monthly budget goes straight out during the first week of the month. And, you are almost left with nothing in case of an emergency or some extra spending.
- You need to buy a new business equipment
- Your old machine still has some installments to pay
- The manager needs to hire another staff member
- The office rent also demands your attention
- The employees require new ingredients for the stock
Argh, and the list goes on and on. Everything needs cash and your attention: an increase in order, the occasional bonuses, business meetings, returned orders, etc., thinking of things from a business owner’s point of view, every trivial to major thing is necessary and can’t be avoided.
Here comes the Buy now, pay later model in the picture:
- You can get everything you want to run your business efficiently but pay the bill in installments
- For instance, transfer what you can without restaining your budget and pay the rest later when the sales start to grow
You can think that using BNPL will allow you to benefit from sales as the product is typically paying for the spending itself. So, yes, it’s perfect for a small business.
2. Avoid Straining Your Business Credit Card
Susan wright explains all the reasons why a business owner must have a separate business credit card for all professional transactions. Yep, 100%, everyone here agrees that having a business credit card can benefit the business in many ways. However, we aren’t here to discuss that. Instead, let us enlighten you on times you knew it but failed to manage the card and ended up crossing the maximum limit.
- Yes, you follow a monthly business budget to deal with the unexpected accidents
- Yes, your budget includes the insurance payments for certain equipment and machines
However, who knows when misfortune may knock on your door?
- You got extra orders. Lucky enough, woohoo, your business is thriving. However, you didn’t expect this, so as a result there isn’t any planning for the new materials’ money. Never mind, what are business cards for, right? Put it on the tab!
- You just repaired a machine, but sadly it still needs some additional servicing, so you thought of putting the extra payment on your credit card. Good going, you go, businessman!
We can help you remember many other similar incidents when you had to put the bill on your business credit card, resulting in maxing out your credit limit. So, all this could’ve been avoided with a BNPL financing service.
- Purchasing with a BNPL financing app or retailer can help you avoid maxing out your business credit limit
- Using the buy now, pay later funding can aid you in maintaining a low credit utilization ratio as you won’t be using all of your available credit limit
Of course, you need to use your business credit card to build your business score and rating. However, using all the credit won’t help your case. In fact, it will only make matters worse for your business report and financing.
3. Flexible Payment Planning
What’s the dream of a small business owner? To make it big, probably! But, doing the business on a large scale requires the planning and thinking of a business expert. Someone who knows how to finance, how to budget, and most importantly, how to plan. Now, the thinking, planning, and budgeting phase may vary as per your business, but the basic idea is the same.
- Do you plan to expand your business? You need to think of helpful ways to cut out the total cost to have some profit on a small scale first. Only this way you’ll be able to apply the strategies on a large-scale
- Do you plan to add another product category to your online website? You must take the purchasing, production, shipping, and other things into consideration
Oh, how it would be amazing only if you could plan and purchase by making small and affordable payments. Yep, now it’s possible with the BNPL model! (we know you guessed it :p)
- There are varieties of BNPL financing websites and application in the finance market that offers multiple payment modules
- Some even allow the vender to get registered and make a plan that best suits their business and revenue
- You can make the payment in yearly or monthly installments or talk to the BNPL financing to customize your payment period
The chances of you getting the flexible and customized BNPL plan are huge because there are so many apps and websites that have started the buy now and pay later financing service. So, even if you can’t get the one you want from one, there are many out there to choose from.
4. Stress-Free Business Experience
The pandemic anxiety has stressed out so many small and large businesses that it has become almost impossible to recover from it. Nobody knows whether or not their business will be thriving again anytime soon or not. So, when the whole world is at a loss, the small business owner only suffers even more as there’s no backup and finance plan in their business manual.
- BNPL financing can help small business owners to make the little transactions they can afford at the time to help the business run continuously in the bad times
- Some buy now, pay later retailers also offer fraud and liability services in case of identity theft or fraudulent attacks. So, if sadly your business is attacked, you can still get the funding to help it deal with the problem
- No longer having no money means you can run your business or expand the production. BNPL financing is growing for such cases as it helps the small owners to get the funds when needed and buy things that are necessary for their business
Small businesses can also integrate the BNPL payment method on their online portal to become one financing retailer and help consumers generate more sales for their business. Here are some benefits:
- Your potential customer will become a regular as he will most likely purchase again from you due to the BNPL service. Yep, convenience at its finest!
- By integrating BNPL, you’ll get paid in full while the customer pays via installments, so there’s no downfall. Ah, what a relief!
So, is there any catch to BNPL for your business?
Yes! There is, but the benefit will surely surpass the cons. It might make you do impulse spending. Usually, a BNPL financing interest rate is quite high, which can affect your business score and funding in case of missed installments.
That’s it from our side!
There we conclude our comprehensive guide on the benefits and working of Buy now, pay later financing and service for your small business.
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