What is BNPL?

Buy now, pay later (BNPL) is a form of short-term credit that is available to businesses at the time of purchase. Under BNPL, businesses can acquire the goods and services they need immediately, but delay payment until a later date.

BNPL has long been a staple of the B2C market and consumer spending, due to the flexibility and protections it offers both customers and vendors. But it has also become a standard and popular option for the B2B market, particularly with online marketplaces, and boosted by dedicated BNPL platforms and providers that help manage these transactions.

How BNPL works

A BNPL agreement works similarly for businesses as it does for consumers. Under a BNPL arrangement, a business makes a purchase and selects BNPL as their payment option through a third-party vendor. It then agrees to a set payment timeline and schedule. Under BNPL, payments can be simply deferred and later paid off in full all at once, or spread out over multiple smaller payments at predetermined intervals, such 30, 60, 90 days, or more.

Once the transaction is complete, the business pays the entire balance as promised or begins adhering to the payment schedule. If the business fails to pay, it can incur additional fees or penalties, and the vendor may deny the business a BNPL option on future purchases.

Advantages of BNPL for businesses buyers

The ability to defer or divide payments has tremendous benefits for business customers, who can use BNPL to:

  • Gain additional flexibility and spur growth by obtaining what they need, rather than having to wait for the ability to make a lump-sum payment right away.
  • Improve cash liquidity by spreading out expenses in more affordable installments, rather than paying all at once.
  • Better manage their budgets and upcoming spending, based on scheduled payments.
  • Bypass complicated approval processes or high risks that other short-term financing might bring.

BNPL and trade credit

At its core, BNPL is an updated version of trade credit, which is a longstanding B2B practice where businesses simply invoiced their business customers for products or services they provided and gave them a similarly predetermined amount of time to remit the payment.

However, BNPL provides business vendors with a much more secure and sustainable approach to B2B financing. The main benefit is that it provides more financial security and reduced risk for vendors.

With a trade credit model, a vendor provides a product or service without receiving payment at the time of purchase. This can cause cash flow or administrative strains, as they are fulfilling orders and moving inventories without receiving any immediate payment in return. They also assume the extra risk that the customer might pay late, or not pay at all—at which point the company has lost money on the transaction.

Under BNPL, the vendor gets paid right away, so the vendor gets to provide customer flexibility while still getting paid. The third-party provider assumes the risk of the transaction, so the vendor gets financial security up front while still providing the flexibility and ease that customers demand.