Table of contents
Introduction
Introduction
Over the last few years, Buy Now, Pay Later (BNPL) has evolved and made its steady place in the financial industry for its easy implementation and low risk. Numerous fintech BNPL companies have started providing these services to other businesses, like e-commerce websites, marketplaces, and other online platforms for purchasing goods and services. Companies like Klarna, Afterpay, and Affirm offer buy-now-pay-later financing options, which have become popular among top financial teams, CFOs, and CEOs for purchasing something for their businesses and paying them over time as these services charge no interest. This article aims to help you understand what B2B BNPL is and how it can accelerate your business.
1. Benefits of Buy Now, Pay Later for Your Business
Buy now, pay later is seen everywhere in the business world and offers good opportunities for the top financial teams and CEOs to position their market value. Many companies, irrespective of their size, have started using this financial strategy to limit their cash flow, get a higher conversion rate, and streamline their operations. To give a better understanding, here is how BNPL can tackle the issues:
1.1. Improving Your Cash Flow
It is not feasible for you to pay for new equipment immediately, especially if you are a small or medium-sized business. BNPL comes as a savior to minimize the burden on your working capital. Most B2B companies partner with BNPL platforms to ensure a shorter time frame between paying for the item and the revenues generated post-implementation.
1.2. Better Conversion Rates
B2B companies that integrate the BNPL solutions have witnessed positive and better changes in their conversion rates. For example, a U.K.-based finance firm called Hokodo which specializes in catering to clients in the U.K. as well as, other regions across the globe, has witnessed an uptick of 40% increase in their conversion rate, simply indicating a lucrative ROI and greater annual revenue.
1.3. Streamline Business Operations
BNPL platforms help B2B companies streamline their operational processes by making quicker and more efficient transactions. This reduces the extra administrative burden, paperwork, and negotiation time for payment-related terms and conditions. For example, the U.S.-based BNPL platforms Lendica and CetDigit streamline payment and financing solutions for eCommerce platforms like Shopify and Salesforce by sending invoices to customers after purchasing from their eCommerce websites. This eliminates manual invoice generation and saves valuable time and resources.
BNPL has expanded its wings into the B2B industry as well; however, there might be challenges in its way that can disrupt the digitized transaction process. Let’s take a look at some of them:
2. Challenges and Solutions of BNPL
BNPL is a relatively new medium of payment processing in the B2B industry. Despite its incredible success, it still needs room for improvement, which BNPL providers might face when trading finances for B2B companies. Here are some of them:
2.1. Streamline the Monetary Process
BNPL service providers are largely dependent on third-party credit programs, which leads to tampering with the privacy, security, and digital transactions of their customers. Thus, fintech companies and providers must prioritize the implementation of robust security measures and adhere to data protection regulations to encourage users to use their applications confidently and foster trust.
2.2. Risky Method of Giving Loans
Generally, banks used to bear the risk of “buy and pay later” using credit cards, as they operated large-scale transactions; however, for BNPL providers, it can be a challenging task. B2B lenders who have partnered with such providers demand to bear the premium if the risk is to be borne by the BNPL providers, as they are responsible for customers’ unpaid balances. This issue will lead to higher costs for the rate of interest, which is more than the monthly charge of a credit card. It is vital to understand and analyze the customer’s long-term financial history, like the time of repayment and good credit history, to curb this issue.
If implemented properly, BNPL is one of the trendiest solutions that will change the functionality of your business, as it has the power to improve your sales, reduce cart abandonment, and increase the average order value. Let’s take a quick look at how BNPL solutions can accelerate your business:
3. Best BNPL Solutions Practices for Your Business
The businesses have kicked off normalizing paying online using installments with the help of BNPL providers that have digitized the whole process. According to the latest report by McKinsey, around 65% of B2B companies are into online transactions, and 35% are using BNPL providers for a smooth payment solution. But the financial team, CFOs, and CEOs are still understanding the process. Here are the three best practices that you can use to ensure the BNPL strategies are implemented properly for a better outcome.
3.1. Implement the Right Solution
With the buy now, pay later approach, implementing the correct solution can be confusing. There are two types of payment: split payment solutions and point-of-sale financing that are provided by the BNPL providers. Let’s take a look at some solutions and choose which works best for you.
3.1.1. Split Payment Solution
The split payment solution is an action where the payment is split into 3 or 4 installments at the point of purchase. For example, BNPL provider Splitit, an installments-as-a-service platform, solves the issue of consumers buying something expensive without putting strain on their finances with interest-free. Let’s consider the example of an e-commerce company, Amazon which similarly deals with thousands of sellers by splitting the payments. This allows the company to pay its sellers the correct amount when customers purchase products from Amazon’s website. On the other hand, Amazon and sellers get the benefit of generating flexible revenues, building customer loyalty, and encouraging repeat purchases.
3.1.2. Point-of-sale Financing
Point-of-sale financing is good for customers who love large purchases and paying them as an installment loan. This loan comes in a short and long time with a low interest rate. Some of the most prominent BNPL providers are Affirm, Afterpay, and Klarna, which provide POS financing solutions to their business partners so that consumers can seamlessly process payments.
3.2. Educate Employees on the Installment Process
It is important to train your co-workers on how BNPL works and explain to them the installation payment method that customers will use. This will be a great resource for helping the customers become aware of the valuable pay option you are providing them.
3.3. Inform Consumers About the Purchase Journey
In the purchasing journey, consumers should be aware of the BNPL payment options that they would opt for. By the time the customers reach the payment point, they can decide if the item fits their budget or if they can afford to purchase it. This information can be displayed through advertisements on social media or your company’s website.
Buy Now, Pay Later solutions aren’t something new in the financial industry; however, the method or the solutions have changed over time. Especially during the time of the pandemic, customers and businesses have become more digitalized, and thus they have started looking for alternative payment methods. BNPL made its way into the business for a smooth and digital payment transaction solution. Numerous companies, irrespective of their size, have started using BNPL solutions for their customers; one such example is Target. Let’s see how Target implemented this in its retail stores:
4. Success Story- Target
Target is a retail department store chain in the U.S.A., that has adopted a popular BNPL provider called Sezzle. Target joined hands with Sezzle in 2021 with the plan of implementing a “buy now, pay later” option for its customers. One big advantage to customers is that they get the best deals and pay at a pace that suits their budget, which is a handy option during the holiday season. Gemma Kubat, Target’s president of financial and retail services, quotes, “We know our guests want easy and affordable payment options that work within their family’s budget. Through our partnerships with Affirm and Sezzle, Target is investing in new financial tools that make our shopping experiences more flexible and personalized to guests’ needs, right in time for the holiday season.” Sezzle offers a wide range of payment options, timelines, and services based on the customer’s eligibility, willingness to buy a product, and the term of payment. Post-implementation, Target has successfully witnessed an increase in its conversion rate and ROI, which has generated better revenue and increased customer engagement.
Buy now, pay later is a tectonic shift in the financial industry from conventional lenders to the point of sale. Even though the concept is not new, it has added convenience in the B2B industry with hassle-free loan lifecycles to streamline functionalities.
