If you’ve bought anything in the last two years, you’ve probably heard of ‘Buy Now Pay Later,’ or BNPL as they like to call it. It’s a simple concept on paper. The customer buys a product and service and makes the payment in (usually) four equal interest-free instalments over the following weeks and months. The idea here is that customers can manage their cash flow more easily, as they don’t need to stump up the total amount upfront.

It’s beneficial for retailers to offer BNPL as it attracts more customers and entices them to perhaps spend more than they usually would. Even though the BNPL provider clips a rather serious fee, store owners are usually better off as they don’t carry the risk of default from the customer. Not that BNPL agreements are a loan, of course… Instead of charging interest, providers instead charge ‘late fees’ for customers who miss their repayments.

Australia is ground-zero for Buy Now Pay Later. Recently-acquired Afterpay was the market pioneer in the space that spawned many competitors globally, including Zip, OpenPay, Douugh, Sezzle, Splitit and Klarna. What rises fast often falls less gracefully. Let’s explore why BNPL’s glory days might now be over and what alternatives there are for businesses like yours.

What are the issues with Buy Now Pay Later?

While initially interest-free deals were offered on higher-end goods, such as furniture or electronics, BNPL made the concept accessible for everyone on any budget or financial background. This means that in the current environment, consumers are using BNPL to pay for almost anything, such as socks and sneakers. We also know that, as intended, 70% of users admit to spending more than they would if they had to pay for everything upfront.

Furthermore, Buy Now Pay Later has been primarily driven by younger consumers, of which two-thirds can be considered ‘sub-prime.’ According to research, 18% of users have missed a payment in Australia, and that number is much higher in the US. Loading up on consumer goods and potentially missing payments is not exactly the best way to start your financial journey!

Buy Now Pay Later for businesses

Your business may have experienced BNPL in two ways – as a user or as a provider. If you run a B2C business, you may already be offering your customers multiple ways to pay, including BNPL. It’s like providing your goods and services on credit, except you get paid regardless. How a customer pays you probably doesn’t matter, as long as you get paid, and they have the means to return and purchase again.

On the other hand, B2B Buy Now Pay Later offerings have also started popping up. These providers allow larger business purchases to be made and paid off in a similar interest-free instalment scheme. They may be a decent short-term solution for your business to make payments while spreading out your cash flow, but is this a sustainable option in the long term?

Debtor finance and invoice factoring are tested alternatives

Instead of biting off more than you can chew by relying on Buy Now Pay Later solutions to plug short-term gaps in your cash flow, instead consider debtor finance. It’s a scalable financing solution that uses your account receivables to access additional working capital when required. Essentially this means drawing funds on invoices you’ve issued but have yet to be paid.

Debtor finance allows your business to access cash sooner from unpaid invoices. Debtor finance providers will pay you up to 90% of your verified outstanding invoice value upfront. When your customer pays and the funds are received by your debtor finance provider, they’ll remit the remaining 10% minus a small fee to compensate for early funding. Your business can use this cash instantly to pay your bills, secure new suppliers or invest in growth opportunities.

Instead of paying in instalments or relying on your customers to make their payments on time, debtor finance is a trusted solution that provides funding based on actual assets. When you issue more invoices, your access to funding also increases, making it an ideal solution for growing businesses with increasing working capital requirements. Invoice factoring is a similar concept that instead requires your business to ‘sell’ your invoice, dissolving your responsibility for the collection, but also might cost your more depending on the discount applied.

Is the era of Buy Now Pay Later over? It might be too early to say, but it is clear that it’s not a sustainable solution to rely on for growing businesses or customers that care about their financial wellbeing. Consider other reputable solutions, such as debtor finance and invoice factoring, to maximise your business’ cash flow.

Capital Plus Finance is an experienced business finance broker that has your best interests at heart. With a panel of many lenders, The Capital Plus Finance team will do everything we can to help you secure a suitable finance solution, including debtor finance. Please give us a call anytime to find out more or to have an obligation-free chat about your personal and business situation.