More and more businesses offer “buy now, pay later” (BNPL) models to current and new customers. But although the financial benefits of these offerings speak for themselves, many small businesses wonder whether such arrangements can help them grow and scale their enterprises.
Today, let’s break down how ‘buy now, pay later’ models can help you not just grow your business but grow your long-term customer base faster than ever.
What is Buy Now, Pay Later (BNPL)?
The buy now, pay later, or “BNPL” model allows your business to offer miniature loans to its customers. Through BNPL, customers don’t need to pay the total price of a product up front. Instead:
- The customer chooses to make a purchase
- At checkout, the customer selects BNPL
- In just seconds, your brand (or service you hire) analyzes the situation, as well as the customer’s financials
- If approved, the customer makes a small down payment. This is usually 25% or less of the total purchase amount
- Over time, the customer pays the remainder of the item balance in installments
Customers use BNPL to pay for expensive products over time rather than having to foot the entire bill for it at once.
Businesses still (in theory) receive the total value of the purchased product eventually. Customers benefit since they get access to the products they want more quickly without waiting to save enough cash.
Why is Buy Now, Pay Later Beneficial for Your Business?
It’s easy to see why customers are crazy about buy now, pay later purchasing programs. But what about businesses like yours? In truth, there are lots of ways that the BNPL model can help you grow your business faster than you believed possible.
Buy Now, Pay Later Inspires Larger Purchases
For starters, buy now, pay later inspires customers to make larger purchases. This isn’t the same thing as more purchases, of course. But it does convince many customers to spend more money on your brand than they might have otherwise.
Say that you run a business where most of your products are well over $200 in retail value. While you might have plenty of business or plenty of people coming into your store, only a percentage of those visitors make purchases given the high asking prices for your products.
In such a scenario, your revenue or profit margins might be dangerously thin. With BNPL, you’ll make it much easier for your customers to purchase your products without having to set them at discounts.
You’ll still make, for instance, the full value of a $200 product purchase eventually. But with buy now, pay later, more customers can purchase that product right away by putting down $50 or so and paying you the remaining difference over several weeks or months.
In this sense, BNPL helps your business grow by directly resulting in more revenue and more purchases from your brand. The more things you sell, after all, the more successful your enterprise is!
Buy Now, Pay Later Attracts Customers
On top of that, BNPL can attract a much broader customer base to your brand by offering more payment options.
Again, businesses that have high-priced items more than not have difficulty cultivating large customer bases. It’s just a fact that most people don’t go out shopping looking to spend several hundred dollars right off the bat. In most cases, people only spend a few hundred dollars after careful consideration.
With buy now, pay later, you can attract many more customers to your brand since all your products practically become cheaper in terms of what customers must pay upfront. Say that you have a fantastic $500 item. It’s your flagship product, and you want to attract more customers to your brand in general.
If you implement a BNPL system, more customers can purchase that flagship product and become regular patrons of your brand. The more customers you attract, the more likely it is you’ll see higher conversions and more money in the short and long terms.
Buy Now, Pay Later Drives Customer Loyalty
Perhaps most importantly, the BNPL model can help you build and drive customer loyalty. Once someone makes a purchase from your brand, they are more likely to do it again (assuming that your products are well-designed and your brand is worthwhile, of course). But buy now, pay later makes customer loyalty more confident because it ties a customer to your store for a longer timeframe.
When someone makes a purchase at a typical business, they buy what they want and go about their days. If someone makes a BNPL purchase from your brand, they are reminded of your company over and over until the balance of their product is paid off.
That’s an invaluable tool when trying to build brand awareness and get people more used to your company, mainly if you operate in a competitive niche. The more contact people have with your brand, the more subconscious loyalty they will feel to it.
In addition, you can implement a loyalty program that incentivizes buying now and paying later among your customers. For example, you can say that all your store or business loyalty program members get an automatic 5% off purchases they make through the BNPL model. Not only does this incentivize long-term purchases, but it also incentivizes people to sign up for your loyalty program.
Don’t You Lose Money from Buy Now, Pay Later?
According to a recent survey, 70% of surveyed businesses had to wait between one and six months to get paid on average. Won’t this happen with buy now, pay later purchases? Not necessarily.
Any loan, including a miniature loan from a BNPL model, has the potential to go sour. Say that one of your customers signs a BNPL contract to purchase a very high-quality TV from your brand. But after two payments, your customer stops making those payments and defaults on the purchase.
In such a scenario, you still have options to recoup your losses. For example, you can report the delinquent customer to the credit bureaus. You can also report the delinquent customer to the banks, at which point their accounts may be frozen until they pay you what you are owed.
Another solution is to directly contact customers who are behind on payments. As an example, you can use Weave’s messaging system to send SMS messages to problematic customers (and remind them to make payments). Or you can lock that problematic customer out of making further purchases at your brand until their account is in good standing once again.
Even if you can’t locate a BNPL customer, you may be able to recoup the losses from the bad contract via insurance – and indeed, you should never set up a buy now, pay later business model without adequate insurance.
Bottom line: there are many ways for you to get any money you lose from BNPL back. The potential gains far offset the potential losses you might see from implementing BNPL at the earliest opportunity.
Ultimately, buy now, pay later offerings are not ideal for every business. But odds are your small business could benefit from offering BNPL purchases to customers, particularly if you sell a lot of high-value or big-ticket items and want to increase your revenue.
With the right BNPL model in place, you can grow your business faster than ever and build customer loyalty simultaneously. What’s not to like? Consider implementing buy now, pay later at your business today.