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What is Buy Now Pay Later and how does it work in B2B Trade?
What is Buy Now Pay Later?
BNPL in B2B is a short-term financing solution that allows businesses to acquire goods or services upfront and defer payment until a later date. Instead of an immediate upfront payment, buyers are granted a payment window, typically spanning 30 to 90 days, during which they can settle the amount owed, often with additional interest or fees. This payment can be made either in installments or as a lump sum at the end of the grace period.
How Does Buy Now Pay Later Work?
In B2B transactions, BNPL enables businesses to make immediate purchases from other companies while postponing payment. When a purchase is made, the BNPL provider pays the merchant upfront, and the customer agrees to repay the BNPL provider according to predefined terms. For example, if a lifestyle company needs textiles but lacks the immediate funds, they can employ BNPL to make the purchase and defer payment for, say, 60 days. This gives them the opportunity to generate revenue using the textiles before settling the full payment.
Alternatively, some BNPL providers, such as Mondu, offer installment plans. Suppose a B2B customer wants to buy €5,000 worth of products from a supplier. Instead of an upfront payment, they opt for BNPL and agree to repay the BNPL provider in 12 equal monthly installments. At the end of the 12 months, the customer will have fully cleared the amount, including any applicable interest.
The BNPL Online Checkout Process
- The buyer adds products to their cart.
- They choose Buy Now Pay Later as the payment method and select preferred terms.
- Real-time credit and fraud checks are conducted by the BNPL provider.
- If approved, the order is processed, and the goods are delivered.
- The BNPL provider pays the merchant, deducting any fees.
- The BNPL provider collects payments from the buyer as per the agreed-upon terms.
What Merchants Stand to Gain by Outsourcing BNPL to an External Provider
Outsourcing BNPL comes with several advantages for B2B merchants:
- Risk Mitigation: BNPL providers assume the risk of non-payment, safeguarding sellers against bad debt. This is especially crucial for smaller businesses that can't absorb default costs.
- Improved Cash Flow: Working with a BNPL provider allows B2B sellers to receive upfront payment for their goods, enhancing cash flow and supporting investment in growth opportunities.
- Reduced Administrative Burden: BNPL providers handle payment processes, from credit checks to collections, relieving sellers of administrative tasks. This frees up resources and time for core business operations.
- Increased Sales: BNPL is a powerful tool to boost sales by attracting customers who can't make upfront payments. It also enables merchants to accept new customers who might have been declined without this payment option.
- Greater Retention and Loyalty: Offering BNPL services enhances customer satisfaction and loyalty, as businesses providing flexible payment options tend to enjoy higher customer return rates.
- Competitive Advantage: BNPL services can differentiate B2B sellers from their competitors and appeal to customers seeking flexible payment choices.
Mondu's BNPL Solution
As B2B buyers increasingly turn to online channels, the demand for efficient digital financing options continues to rise. Mondu's BNPL solution allows businesses to seamlessly offer BNPL across various sales channels, enhancing sales, customer loyalty, and overall growth.
Incorporating BNPL into your B2B payment options is a smart move in the evolving landscape of commerce. It empowers your business to cater to diverse customer needs while bolstering your financial health and competitiveness. Contact us at Mondu for a demo to see how our BNPL solution can transform your business.