Jun 06, 2023
What challenges does “Buy Now Pay Later” solve for merchants?
The “Buy now pay later” offering is meant to solve a cash flow problem, as it enables merchants to obtain payment for their invoices faster. No more waiting 30, 60, or 90 days under conventional net payment terms.
Until recently, the way businesses transacted with each other was through trust and delayed payment methods, which can result in late fees and charge interest. As an example, a retailer sells physical goods to a buyer who must provide a payment method in a given time frame.
There are a number of problems with delayed payment methods for the merchant — especially for larger purchases or high ticket items.
With net terms in B2B transactions, it’s expected that payment will not occur at the time of purchase. Instead, buyers have a window of time to make a repayment. This can create major cash flow issues for the seller, not to mention a daunting accounts receivable problem.
In essence, one side of the transaction shoulders all of the risk. Not only does the seller have to front the goods, they have to check the buyer’s credit score. The merchant then must decide if their customer is a worthy recipient of net terms.
This is the epitome of risk for merchants: what happens when businesses go under because they cannot meet their financial obligations? Surely there must be better financing options that enable companies to conduct B2B transactions with ease.
There is, and Buy Now Pay Later (BNPL) for merchants is one of the most compelling innovations in the payment space in recent years. This flexible payment option technology makes sense on many levels.
What is Buy Now Pay Later?
BNPL is a form of trade credit that enables a buyer to purchase goods without paying in full up front. A third party, like Resolve, pays the merchant in full, and follows up with the customer. An installment-based payment plan makes equal payments over a period of time.
This payment option enables customers to buy what they want without fronting a lump sum of cash or relying on their credit cards. And businesses are able to smooth out cash flow as they receive the entire payment from a third party BNPL provider. The money arrives around the point of sale, without the merchant worrying if a new customer can manage a repayment schedule.
Buy Now Pay Later for merchants is an arrangement that works well for both sides of a transaction. It comes with the added benefit of creating a new payment option for commerce.
Buy Now Pay Later for merchants: selling in a B2B context
In B2B transactions, installment payments work especially well because BNPL makes it easy for buyers to buy, and sellers to sell. Buy now pay later for merchants removes the friction that would otherwise cause two parties to not transact with each other.
For example, a new customer wants to purchase a shipping container worth of consumer goods, but the seller sees the buyer’s credit score as risky. This uncertainty squashes any deal that may have occurred. In the past, large parties dictated repayment terms with smaller suppliers, but BNPL levels the playing field.
With BNPL options, the buyer can make repayments through interest-free installments at the time of checkout. This newer B2B payment option at the point of sale is where BNPL options really shine.
Problems that BNPL services aim to solve for B2B eCommerce
Buy Now Pay Later for merchants addresses very specific pain points for B2B companies related to net payment terms, such as:
- Risks and cash flow if they previously provided short-term loans to customers
- Customer business credit checks, credit score, and credit limits
- Time spent chasing down accounts receivables, installment payments, processing late fees, and charging interest
- Sales abandonment due to price sticker shock
With repayment collection, there is an endless sea of issues for retailers and other merchants. To sidestep potential non-payment, it makes sense for some businesses to consider accepting Buy Now Pay Later as a payment option.
What types of eCommerce merchants should use BNPL?
US-based retailers, manufacturers, wholesalers, and distributors can reap compelling benefits when they incorporate Buy Now Pay Later for merchants into their payment mix.
Manufacturers have excessive amounts of capital tied up in raw material. The last thing they need is to finance customer repayment with no certainty that the installment payments will arrive. BNPL facilitates nearly streamlined payments for manufacturers, so they can forget about payment collection, and instead focus on what they do best.
Wholesalers commonly float “pay later” loans to their retail customers in the form of net payment terms. If any of their retail partners face financial difficulties, it’s possible that repayment will not occur. This pay later situation presents obvious cash flow difficulties for the merchant.
When wholesalers get paid nearly right away, within one business day, they free up cash flow. BNPL options that also offer advance pay features allows merchants to acquire and move more product, which can only be good for business.
Distributors act as an agent that supplies goods that other businesses sell to customers at a profit. They are similar to wholesalers in that they must pay cash up front for goods, but extend net payment terms.
This creates a cash gap where funds go out, but nothing comes in.
Buy Now Pay Later payment options offer quick payment to distributors, and extend favorable terms to their current and new customers, thus benefiting all parties.
C-level leaders in manufacturing, wholesale, and distribution are well-advised to consider implementing BNPL services to introduce more flexibility to their payment process. BNPL payment options can lead to increased revenues and an attractive ROI; removing price and repayment friction is one way to accomplish these goals.
Buy Now Pay Later basics — from the customer side (B2B)
In a Buy Now Pay Later transaction there are three parties: the merchant, the customer, and a third party provider who acts as an intermediary. The third party acts as an invisible facilitator between the first two parties and shoulders payment risk at the point of sale in exchange for a fee.
From a customer perspective, BNPL opens up a wide variety of buying possibilities.
By providing installments as a payment method (similar to layaway), customers may purchase more expensive, high ticket items. Using BNPL, customers can acquire goods without the risk of immediate debt or credit card interest fees.
Although BNPL is attractive from the customer’s side of the counter, it’s perhaps even more appealing for merchants.
Buy Now Pay Later basics — from the merchant side (B2B)
Developing BNPL services and technology in-house, from scratch, would be a massive undertaking. That’s why third party BNPL providers exist — they enable full outsourcing, in confidence.
A variety of BNPL vendors facilitate B2B payment processing, ensuring that offerings in the space are vibrant and competitive.
For B2B companies, including merchants, Buy Now Pay Later opens up new ways to sell and collect payment through payment options that did not exist before. Traditionally, merchants make sales on paper, and the customer walks away with product, however no money changes hands. This arrangement favors the customer and leaves the merchant in the difficult position of acting like a bank, which is outside of their core competency.
For B2B merchants selling high ticket items, BNPL ensures they get paid within one business day, while the customer can pay over time with installments. It’s a win-win scenario for both sides.
In terms of chargebacks, they are a non-issue for the merchant as the customer pays the BNPL provider rather than the merchant.
How is BNPL different from a business credit card?
There are a few key differences between credit cards and BNPL.
First, the Buy Now Pay Later for Merchants options are often interest-free for the buyer. Purchases that use equal payment installments come without the worry about incurring expensive interest costs. Credit card payments are far from interest-free, these charges can range from 15 to 25 percent.
Second, although BNPL loan and repayment plans are flexible, they do not provide rewards such as cash back, air miles, or points on purchases. If rewards are a key consideration, and the buyer has the funds to quickly pay back credit card purchases, BNPL may not be the right option.
BNPL, along with credit cards, provide eCommerce payment options that ensure merchants get paid right away. At the same time it makes sure customers get their desired goods — without payment friction getting in the way.
BNPL has even caught the attention of credit card companies who now offer installment payment options — sometimes at a zero percent interest rate. BNPL providers have essentially pushed credit card companies into offering installment plans.
What BNPL options are available for manufacturers, wholesalers, and distributors?
BNPL options facilitate big business. Whether merchants use Buy Now Pay Later for items such as electronics, clothing and jewelry, or furniture and appliances, BNPL is a great fit.
One limit for companies selling high ticket items is how much credit the BNPL provider will extend at checkout. Of course, the fine print says this finance option depends on the customer and their financial profile.
Whether it’s a shipping container full of goods, or expensive specialty items, BNPL is a viable installment payment option. Buy Now Pay Later for merchants enables B2B companies to grow revenues without worrying about chargebacks using an innovative yet practical repayment model. And it allows customers to pay for goods without worrying about racking up high interest debt on their business credit cards.
Are there risks associated with BNPL in a B2B setting?
The way BNPL providers handle risk is similar to credit card companies. To make BNPL offerings palatable, BNPL companies take on most of the risk of non-payment.
Whether it’s unscrupulous merchants, nefarious customers or hackers, BNPL providers (should!) specialize in analyzing risk probabilities and mitigation measures. This removes any concerns B2B companies might have when extending BNPLas a payment option.
A big risk for BNPL companies themselves is fraudulent merchants. For example, an eCommerce company could submit falsified orders using real or fake new customer information, and collect payment installments for the 'sold' goods. In a case such as this, the BNPL provider could not follow up with fictitious customers for repayment.
What you need to know about BNPL fraud
Anyone can commit BNPL fraud, including merchants, professional fraudsters, consumers, or even BNPL companies themselves.
In any area of finance, including fintech, opportunistic criminals try to find ways to exploit the system. The good news: BNPL companies should be experts when it comes to the advanced data analysis that manages fraud risk with this payment option.
The challenge for third party BNPL providers in terms of fraud management is to provide a seamless experience for legitimate customers while locking out the bad actors. Though it seems difficult to maneuver, BNPL providers are experts at it.
Buy Now Pay Later for merchants works because reputable BNPL providers provide payment options that serve both eCommerce and brick and mortar businesses at the point of sale, including retailers, manufacturers, wholesalers, and distributors.
How does BNPL work with net terms?
The Covid- pandemic forced brick and mortar merchants dealing in physical goods to move online. They had to put in effort to reach new customers, conduct business, and process financing options remotely. The old way of doing things where a business picks up the phone to ask a supplier for more time to make a repayment — hopefully with minimal late fees or interest charges — quickly faded away.
Coming to the forefront in its place is net terms-as-a-service for B2B companies, offered by companies like Resolve. Instead of evaluating new customers’ credit scores and creditworthiness themselves, a company can work with a technology partner like Resolve to speed up the credit decision process and facilitate faster, more efficient business.
The old way of managing net payment terms of 30, 60, 90, or even 120 days in a manual way is starkly different from today’s simple yet sophisticated BNPL services and systems. Buy Now Pay Later for merchants facilitates repayments of deferred invoice balances in installments.
There are many known BNPL providers and payment options in the B2C world, including Affirm, Klarna, AfterPay, PayPal, Stripe, Sezzle and others that offer options for installment payments. But there are only so many BNPL providers that focus and specialize on the evolving and complex needs of B2B companies.
Resolve – Buy Now Pay Later for merchants
Resolve started off as a spinout from Affirm as a solution labeled “Buy Now Pay Later for merchants”. With their evolution of BNPL, wholesalers, distributors, and suppliers can enable their buyers to make invoice repayments through deferred installments under net terms (30, 60, or 90 days).
No matter how buyers purchase the goods (eCommerce or off-line), Resolve’s B2B payments solutions enable versatile and flexible payment methods while conducting business credit checks and even making difficult credit decisions about new customers.
Resolve facilitates a merchant’s B2B accounts receivables through net terms-as-a-service and giving their buyers repayment options, so that businesses can focus on what they do best — running and growing the business.
Merchants: fuel business growth with Resolve
Resolve has evolved from basic BNPL solutions to become more than a deferred payment facilitator. Resolve is a trusted business partner that supports merchants and their financial operations, growth, and bottom line.
Resolve is a simple B2B payments solution that enhances every element of the accounts receivable workflow for growing B2B companies. By offering net terms-as-a-service, Resolve eliminates the complexity and risk of managing credit decisions by automating underwriting and net terms enrollment.
Interested in learning how you can increase conversion rates on your B2B eCommerce checkout or increase your average order values through larger purchases? Learn more about Resolve.
