Buy Now Pay Later – What Happens Later?

Buy Now, Pay Later schemes have been around on the consumer market for a long time now. Used as a way to finance Christmas or larger purchases, they can be a useful tool if you don’t have a big chunk of money to pay a bill all at once.

In recent years, buy now pay later has been making its way into the business world as well. Businesses are now able to make large purchases without having the cash on hand, or spending anything at the point of sale – putting the payment off until later. But as debt collectors we have to ask, how effective is this system going to be, and what damage could it do?

How Does Buy Now, Pay Later Work For Businesses?

Buy now, Pay Later (or BNPL) for businesses works a lot like the consumer equivalent. It’s a form of short-term lending offered to business buyers at the point of sale, allowing them to spread the cost of the purchase or even delay payments, while the merchant is still paid upfront. Most of the services offering BNPL are interest-free, so there is no added cost for using the service. When used carefully, they can be a useful tool for businesses to improve cash flow while still making crucial investments for growth.

This method of delaying payments has gained so much traction that even large retailers like ASOS, John Lewis, Samsung, H&M and even Pandora all utilise the BNPL option and offer it to their customers – both consumers and other businesses. When offering it, most retailers only do a soft credit check (although some do a hard check), so it won’t leave a mark on your credit history to apply either.

What Happens Later?

The idea of BNPL is great in theory, but the problem is that later does come around, and sooner or later that money will need to be paid back. But the fatal flaw of BNPL is that it’s something that’s readily available and very easily forgotten about once the purchase has taken place. In fact, UK consumers and businesses have now racked up just over £4.1 billion worth of debt in unpaid BNPL services. It also doesn’t help that BNPL providers don’t keep track of your spending or check your ability to pay back the loan in the future, so it’s all too easy to get into a situation where you owe a lot more than you can afford.

If you miss a payment on your BNPL agreement, the provider will usually allow a short period of time for you to make the payment, and even send you reminders to do so. But this window is short, and once you’re outside this time you could be hit with late payment fees – which will add on to the amount you and potentially impact your corporate credit score. If the amount remains unpaid or more payments are missed, then some BNPL companies will instruct a debt collection agency to recover the debt from you. That is where you would come into contact with people like us.

BNPL In The B2B World

While it may have started as a consumer service, BNPL is regularly being taken advantage of by companies too. In fact, it’s quickly taking over the older solution of invoice factoring or financing, and many providers think that BNPL provides a competitive alternative. And in some cases, they are right.

The problem is, the risks embedded in the BNPL process will only grow, and this could lead to significant problems for businesses. Many will find themselves taking on more debt than they can afford, and this will lead to a tidal wave of businesses closing down and being unable to pay their debts in the process. Not to mention that BNPL is not currently financially regulated in any way, so it’s all too easy to end up making the wrong decision and have no protection to help in a financial dispute.

At Debtcol, we’re a bit divided on the idea of BNPL in the B2B space. On the one hand, it can make a huge difference to cashflow management for many businesses, and allow smaller companies to purchase assets they may need to compete with bigger businesses much earlier in the process. However, there are still a lot of risks associated with using BNPL in your purchasing, and we’re being called on to reclaim debts accrued from BNPL services more and more.

If you would like to know more about BNPL, invoice financing or cashflow management, just get in touch with the team at Debtcol today and we’ll be happy to help.