Pros and cons of Buy Now, Pay Later models for small business
Apr 05, 2024
The buy now pay later business model in India has quickly emerged as a go-to strategy for small businesses looking to scale up, and scale up fast.
The reality of things, however, is not so straightforward.
While buy now pay later has been effective in quite a few cases it can also be a risky venture for some.
It is the direct outcome of increasing market competition, economic uncertainty, and the changing market trends and hence can be unpredictable.
Therefore, before you implement this novel tactic for your business it would be wise to weigh out the advantages and disadvantages of buy now pay later.
What is buy now pay later business model in India?
Buy now, pay later or BNPL is basically a point of sale strategy of financing.
As its name suggests, the buy now pay later business model in India gives customers the facility to buy goods or services first, on credit, and then pay for the purchased items later, typically via the instalment system.
Depending on merchant terms and conditions, the purchase will be a part of the statement that directly follows the purchase or on a succeeding one.
Note that BNPL payments do not become a part of your credit card bill or statement.
BNPL packages are offered by both banks as well as third-party payment services.
Interest-free loans are made available by these providers on the condition that repayment is done within the stipulated timeframe.
If customers fail to pay within the timeframe and grace period provided they will then be charged interest on the outstanding loan amount.
What are the advantages of buy now pay later for small businesses?
1. Attracts new customers
Buy now pay later is particularly advantageous because it is an extremely eye-catching and lucrative offer.
It gives customers who would otherwise not have access to immediate funds the opportunity to buy a product that they can pay for later and in this way helps small businesses attract new customers.
2. Boosts sales
An increase in the number of customers a business pulls in is directly going to impact sales.
Buy now pay later for small business is a potent way of increasing your sales because it makes products more affordable and therefore attracts a wider audience, including young people.
3. Abandonment of cart reduces
What often happens is that customers add items to the cart but don’t ultimately buy anything because of a lack of payment options that are convenient for them.
Moreover, the high price of multiple products in a cart can also demotivate a customer.
Instead, by making BNPL available you give customers a convenient option for payment. And this is one of the major benefits of BNPL as it help reduce the likelihood of customers abandoning the cart.
4. Affordable, flexible payments for costly products
BNPL has the advantage of improving the order conversion rate of high-end, costly products.
By splitting payments across months, companies can make expensive products affordable and therefore increase the chances of them being sold.
5. Higher than average order value
When payments are smaller and spread out over a period of time it increases the AOV or Average Order Value of a customer.
When making a purchase AOV is the average amount paid by a customer.
BNPL increases a customer’s purchasing power and therefore has a positive influence on AOV.
6. Maintains constant cash flow
Buy now pay later for small business is particularly effective because it helps companies maintain cash flow.
Given that a small business needs all the resources it can get, making sure cash flow is constant can help improve the rate at which your business grows.
7. Improved customer experience
Easy convenient payment options open up a lot of possibilities for customers.
It gives them the ability to finance purchases that would have in another case been too costly.
The availability of BNPL has made this possible, it improves the customer experience by making it easier to buy products.
8. Boost customer lifetime value
Over the course of a lifetime, the total time a customer invests or spends in your store is referred to as Customer Lifetime Value or CLV/LTV.
Keeping this metric at an acceptable level has become difficult as the cost of living overall has increased so much over the years.
With the introduction of buy now pay later business model in India, however, customers now have a chance to expand their purchasing powers, which will ultimately lead to a boost in the CLV they provide to your business.
What are the disadvantages of buy now pay later for small businesses?
1. Integration challenges
Integrating BNPL into a business model can be a tricky process and for small businesses, it can also mean expensive purchases.
The process requires specialized technology so using a third-party provider can be a good idea.
2. Challenges of accreditation
Unfortunately, the buy now pay later business model in India is not available to be used by all businesses.
To be able to implement it you need to get accreditation and for accreditation, your company needs to meet a number of legal requirements.
3. Confusing deals from many providers
Buy now pay later B2B providers have boomed in recent years and the hundreds of deals and packages out there can be confusing to navigate.
Especially if you are a small business, you need to weigh the advantages and disadvantages of buy now pay later providers carefully before you get on board.
4. Buy now pay later financing encourages consumer debt
With BNPL at hand, it is easy to end up spending more than can be afforded at a time.
While this is harmless at low levels, payment debts can pile up and grow into risky ventures for consumers.
How buy now pay later works in India for small businesses?
These are the steps through which BNPL works in India:
• A product is bought by a customer through a merchant or retailer who accepts BNPL.
• After reading and agreeing to the T&Cs of the BNPL service provider the customer chooses BNPL once the payment gateway comes up.
• Once the order has been placed then buyers can choose how and when to pay off the purchase amount.
• The merchant or retailer gets the amount against the products sold instantly or on the very next day.
• The entire purchase amount can now be paid off on very low (sometimes even zero) interest amounts.
The BNPL format of point of sale financing has emerged as a very popular option.
It helps customers buy products they would have otherwise not had the finance to and at the same time helps boost sales and growth for businesses.
Before you use it for your business, weigh the advantages and disadvantages of buy now pay later carefully.
Interested to know about some of the best small business loans in India?
Check it out - Best small business loans in India
