Business Buy Now Pay Later: A New Way to Get Paid From B2B Customers

by Kieran Daly
February 9, 2024
Business Buy Now Pay Later: A New Way to Get Paid From B2B Customers

In recent years and especially since the COVID-19 pandemic, the buy now pay later (BNPL) consumer finance sector in the U.S. has boomed. Sixty percent of Americans have bought goods or services with it, and over the last holiday period, American shoppers spent $16.6 billion with BNPL payments, up 14% from the previous year.

In reaction to this rapid growth, BNPL providers have started to focus on creating and growing a market for business buy now pay later services — which allows companies to offer BNPL payment options to their B2B customers.

In this article, we cover:

  • How buy now pay later works in the B2C space

  • How business buy now pay later works

  • The benefits of business BNPL for both companies and customers

How Buy Now Pay Later Works in the B2C Space

Before we explain how buy now pay later works for small businesses, let’s review how it works in the business-to-consumer (B2C) space — where BNPL first came onto the scene.

BNPL is prevalent in online shopping. When a customer gets to the checkout page, they’re presented with three different payment options:

  • A debit or credit card payment

  • A digital wallet payment, like Apple Pay or Google Pay

  • A buy now pay later option that offers a short-term loan of a few weeks or months and doesn’t charge interest

One or more of the following logos are often seen next to the buy now pay later financing option: Klarna, Affirm, PayPal, Afterpay, Zip (formerly QuadPay), Sezzle, or SplitIt. These are the common buy now pay later providers or lenders in the B2C space.

It’s even become commonplace to use BNPL for offline shopping. Some retailers offer a BNPL payment option for in-store purchases, while some of the BNPL services have mobile apps that provide a virtual card to be used at an in-person checkout.

In general, the customer will repay their BNPL loan in one of two ways:

  • Interest-free installment payments: The payment of the first installment is taken upfront, followed by either weekly, biweekly, or monthly payments until the full amount is repaid.

  • Delayed payment: There is no down payment with this plan, and the customer repays the balance after an agreed period of time, normally around 30 days.

BNPL lenders try to remove as much friction from the application process as possible. For example, many don’t even require a soft credit check to approve a BNPL loan.

However, depending on the BNPL company, missed payments may result in late fees, or the late payment could be reported to the credit bureaus, which may affect the customer's credit score.

What Is Business Buy Now Pay Later?

Buy now pay later for business is nearly identical to the B2C option, except that it’s intended for B2B transactions instead.

Like with the consumer version of BNPL, companies buying from you can purchase goods and services and either make a one-off deferred payment or a series of installments with no upfront payment. They’ll also get instant real-time approval decisions from your B2B BNPL lender.

However, B2B BNPL does charge interest to your customers on installments, unlike B2C BNPL. Also, the facility fees your business pays to the lender may be slightly higher than the fees you’d pay to a credit card payment processor.

Benefits of B2B Buy Now Pay Later

There are many benefits of business buy now pay later for both your business and your customers. Let’s take a look at some of them.

The Benefits for Your Business

The seven most important advantages of offering buy now pay later for business as a payment option are:

  1. Better cash flow management: When you partner with a business buy now pay later provider, you’ll receive cash on the sales you make right away — even though the customer hasn’t yet paid the BNPL lender. This leads to improved liquidity in your business and a stronger base for financial planning and investment back into your business, especially if you’re planning growth strategies.

  2. Increased conversion rates: BNPL offers customers the chance to place an order even if they don’t have the cash for it right now. With up to a year to settle an invoice in full, this removes the affordability barrier that may have prevented many customers from completing a purchase, meaning you may be able to convert more sales..

  3. Faster turnaround: It can take weeks to set up an invoice factoring facility. Each time you propose a new limit, it can take the factorer a day to decide if they’re happy to offer a facility to them and what their credit limit will be. BNPL approval is instant.

  4. Higher average order values: You may be able to shift more inventory by offering bulk discounts that business customers can afford because they’re paying in installments. This frees up working capital and has the domino effect of increasing average order values (AOV) by more than 150%.

  5. Non-payment risk reduction: BNPL for business is non-recourse for you, meaning that if your customer doesn’t pay back their facility, the BNPL provider doesn’t come after you to cover the loss. With invoice finance and trade credit accounts, non-recourse funding is harder to get by lenders’ underwriting teams, and it normally costs extra too.

  6. B2B e-commerce advantages: By making the purchasing process as simple for B2B buyers as it would be on Amazon, you remove much of the friction involved in B2B transactions.

  7. Market differentiation through flexibility: Some business buyers may choose you over a cheaper competitor because you offer split payments and they don’t. BNPL offers a real opportunity to grow your customer bases by offering more flexible payment options.

The Benefits for Your Customers

The five main advantages of B2B BNPL for your customers are:

  1. More affordable large purchases: Buy now pay later for business makes expensive purchases easier to manage by breaking them down into smaller payments. They may also be able to take advantage of any volume discounts you’re offering.

  2. No credit check: The customer’s credit score doesn't matter to most BNPL solution providers, so no hard credit search will appear on their company's credit record.

  3. Easier budgeting: Spreading out the cost means more cash in your customers’ account, making it easier for them to meet their other fixed and variable costs.

  4. Quicker turnaround time: Purchase approval is easy and immediate. They don't have to fill out long forms like they would for traditional business financing or wait for an underwriter’s response.

  5. Better emergency response: Your customer may not have enough free cash flow to pay for situations like the breakdown of machinery in their factory or the arrival of an unexpected bill. However, they still need to purchase from you to stay in business. Splitting the cost over up to 12 months will help them do this, so they don’t experience financial strain from a necessary purchase.

Start a Buy Now Pay Later for Business Partnership With Backd

BNPL has already proven to boost revenues and profitability for consumer-facing businesses, and it holds the same promising potential for B2B companies. 

By integrating a BNPL solution into your website and other payment platforms, you stand to gain a competitive advantage in the marketplace. In addition, increasing levels of competition between BNPL providers will lead to innovation in the sector, meaning that you'll be able to offer your business customers a wider choice of BNPL offers.

Take advantage of the opportunities offered by this new payment method and become a B2B BNPL partner with Backd.

First, register for our BackdPay payment solutions online. We’ll then send you a link that allows you to offer BNPL on the checkout page of your website. You can even add a BNPL link in your invoices allowing customers to pay in installments. Plus, you’ll earn up to 1% back on financed purchases as a referral fee.

To find out more about BackdPay, contact us today.

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