What is Buy Now Pay Later & How Does It Work?
As the world of B2B commerce continues to evolve, so do the payment options available to businesses and their customers. One such option that has gained significant traction in recent years is Buy Now Pay Later (BNPL).
Today, a rapidly increasing number of B2B businesses across almost every industry adopt BNPL to enhance their payment options and meet the diverse needs of their customers. This trend is expected to continue with BNPL poised to become an increasingly favored payment option for B2B transactions in the years to come.
In this post, we’ll delve into the concept of B2B Buy Now Pay Later, how it works, and outline the key benefits for merchants.
What is BNPL?
Buy Now Pay Later in B2B is a short-term financing option that enables businesses to purchase goods or services from other businesses upfront but defer payment until a later date.
Instead of paying upfront, a buyer is given a payment period, usually between 30 and 90 days, to repay the amount owed, sometimes with added interest or fees. The payment can be made in installments or in full at the end of the payment period.
In recent years, BNPL has emerged as a favoured payment option for B2B online purchases, garnering widespread popularity among customers and merchants alike. As an attractive checkout option, BNPL allows customers to pay for their purchases over time, which is especially helpful for those who don’t have the means to pay upfront.
Buy now pay later enables merchants to receive payment upfront, improving their cash flow. Additionally, by offering BNPL, merchants can increase their sales volume and attract new customers who may have hesitated to purchase due to affordability concerns. The flexibility of BNPL also allows merchants to cater to a broader range of customers, leading to increased revenue and higher customer retention and loyalty.
How does it work ?
In B2B transactions, BNPL allows businesses to purchase goods or services from other companies upfront and defer payment. A buyer is typically given a set period, usually between 30 and 90 days, to repay the amount owed, sometimes with added interest or fees.
When a purchase occurs, the BNPL provider pays the merchant upfront for the purchase, and the customer agrees to repay the payment provider in accordance with the agreed-upon payment terms. For instance, suppose a construction company needs to purchase new machinery to complete a project but doesn’t have the funds to pay for it immediately.
They can use BNPL to purchase the machinery immediately and pay for it later, allowing them to better manage their cash flow. They can defer payment for 60 days (for example), during which time they can use the machinery to operate and generate revenue. At the end of the payment period, the construction company will pay the original purchase amount plus any applicable interest or fees to the supplier, and the transaction is complete.
Alternatively, some payment providers like Mondu enable business customers to pay monthly installments (usually up to 12 months). For example, let’s say a B2B customer wants to purchase £5,000 worth of products from a supplier.
Instead of paying for the products upfront, they choose to use a BNPL provider to defer payment. The payment provider pays the supplier £5,000 upfront, and the customer agrees to repay the BNPL provider in 12 equal monthly installments. After 12 months, the customer will have fully repaid the amount owing, including any interest charged by the BNPL provider (if applicable).
How the BNPL online checkout process works:
Step 1: The buyer adds a product to their basket.
Step 2: They click Buy Now Pay Later as their payment method and select the desired payment terms.
Step 3: The BNPL provider performs credit and fraud checks in real-time.
Step 4: If the buyer receives approval, the order is processed, and the goods are delivered as usual.
Step 5: The BNPL provider pays the merchant the total amount owed minus any fees.
Step 6: The BNPL provider collects the full payment from the buyer according to the agreed payment terms.
Get more out of your payments with Mondu.
Key benefits of outsourcing BNPL for merchants
Outsourcing BNPL offers several benefits for B2B merchants. These include:
BNPL providers assume the risk of non-payment, which means that B2B merchants are protected against bad debt. This can be especially important for smaller businesses that may not have the resources to absorb the cost of a default.
Improved cash flow:
One of the biggest advantages of working with a BNPL provider for B2B merchants is that they can receive payment for their goods upfront. Getting paid upfront enables merchants to improve their cash flow, better manage their expenses, and invest in growth opportunities.
Reduced administrative burden
Beyond eliminating the risk of payment default, BNPL also eases the administrative burden for merchants. BNPL providers typically handle the entire payment process, from credit and fraud checks to collecting payments from buyers. This saves merchants time and resources that would otherwise be spent on managing credit checks, invoicing, and collections. As a result, merchants can focus more on their core business operations and customer relationships.
BNPL is an effective way for B2B merchants to boost sales. It allows customers to make purchases without having to pay upfront, helping merchants to attract and convert customers who may have otherwise been unable to make a purchase. Additionally, by using an external BNPL provider that runs credit checks, merchants can accept new customers that would usually have been turned down if the deferred payment option were offered solely by the merchant.
Greater retention and loyalty:
Offering BNPL helps B2B merchants improve customer satisfaction and loyalty. This is because customers are more likely to return to businesses that offer flexible payment options and a convenient shopping experience.
BNPL can also provide a competitive advantage for B2B merchants. They allow businesses to differentiate themselves from competitors more easily and attract customers searching for flexible payment options.
Discover Mondu’s BNPL solution
As expectations continue to rise and B2B buyers shift their purchasing behaviour to online channels, the need for convenient digital financing options will only increase.
With the help of Mondu, your business can seamlessly offer BNPL online and across all your sales channels – via phone, email, or on-site.
Schedule a demo today to explore how our BNPL solution can help your business increase sales, boost customer loyalty and drive growth.