Your small business attracts a variety of customers – some have cash and are ready to spend it now. Others may really want your products but have trouble paying for them up front. You want to attract both types of customers but the latter customers can create an enigma for you – how to help these customers purchase your products without assuming too much credit or fraud risk if they don’t end up paying?
You may have explored extending credit to customers, and many businesses do, particularly those who sell big ticket items like furniture or vehicles. However, this can be a bookkeeping challenge and your business is probably better suited to sell its core product or service rather than performing credit checks and tracking down debts. In addition, you probably accept credit cards, which can be a great option, but some customers prefer not to use credit cards.
Luckily, a new type of business has entered the market to provide your customers with the opportunity to buy now and pay later. This can enhance the customer experience while giving you the peace of mind of having cash upfront.
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What is a Buy Now Pay Later service?
Buy now pay later (sometimes referred to by the acronym “BNPL”) services let customers receive goods or services from your business now and pay for the purchases at a later point or over time.
Here is how Buy Now Pay Later services usually work, although this can vary by vendor
First, you integrate the service within your normal checkout process flow
You alert your customers at checkout (whether in person or in an online store) about the opportunity to use a Buy Now Pay Later service if they want to – this may appear as a callout, widget, or pop up as your customer checks out.
At checkout, the customer voluntarily opts into using the buy now pay later service
The third party Buy Now Pay Later service will collect a few key pieces of information from your customer and determine if they are eligible – in some cases, it may check their credit score. The customer often has the opportunity to personalize the terms such as splitting the charge into installment payments, delaying the payment for a certain period of time, or selecting a financing option with monthly payments over a longer period of time. The customer checks out and receives the good or service from your small business right away. The Buy Now Pay Later service will pay you the value of the good or service up front, less a fee that is charged to you.
After the transaction, the customer deals directly with the buy now pay later service
The Buy Now Pay Later service will collect payments according to the agreed upon payment plan with the customer until they are done paying off the debt. The Buy Now Pay Later service will often take on the fraud and credit risk, meaning that you will still get paid, even if the service doesn’t collect from the customer.
Here’s a few questions you should ask or confirm when selecting a buy now pay later service:
- How easy is it to integrate with your existing checkout process?
- What are the payment plan options for customers and how much does each option cost you?
- Do they assume fraud and credit risk for the purchase?
Companies across industries have had success with Buy Now Pay Later services. We asked a few small business owners about their experiences with some of the top BNPL companies – many of whom remarked that customers really seem to like the service and that the service seems to increase sales.
A diamond maker loves the 0% interest rate option offered by Affirm
Hayley Anhut, the Content Marketing Manager at Clean Origin, which produces lab-grown diamonds, said that they have been using a company called Affirm for two years and “have been blown away by the number of customers that use the buy now, pay later option but it makes sense given that the average engagement ring purchase is over seven thousand dollars.” They opted for the 0% interest rate option – which means customers pay 0% interest on their puchase – and explained their reasoning: “Yes you have to pay a larger fee for these transactions but we saw the usage of Affirm jump nearly twenty percent after implementing zero percent APR.” It makes sense that customers would find 0% APR appealing and clearly Clean Origin feels it is worth it!
A jewelry store in Indiana reports that 1 out of 5 customers are using Klarna at checkout
Jeff Moriarty at Moriarty’s Gem Art has been using Klarna with his customers after receiving requests from customers about a buy now pay later option. Jeff says it is used in 1 out of every 5 transactions on his website! He attributes this to the high ticket attributes of most purchases on his site – the average being over $500. Jeff said it was easy to implement and the cost just a bit higher than regular credit card fees – “with the bump in business we are getting from it, we don’t plan on getting rid of it anytime soon.”
A Toyota dealership in California loves the speed and ease of using Sunbit with customers who need car repairs
Dave Woodland, the Service Director at San Bernardino Toyota, said they have been using a service called Sunbit to allow customers to buy now and pay later since 2017. For customers that come in to have their car serviced, they can receive the service now and pay later using Sunbit. Dave explained that the process only takes about 30 seconds to get approved – which the customer can do before coming into the dealership or at the counter – and that Sunbit allows flexible payment options. “Our sales team love being able to help their car owners out and in fact, one of our top sales advisors conducts 30% of their business through Sunbit.”
A magazine has had success using Afterpay to allow advertises to buy now and pay later
Lisa Stephenson at She’s Single Magazine has been using Afterpay to allow advertising clients to purchase advertising and pay for it later in 3 small payments. “It has worked wonders, especially now during the COVID-19 pandemic. Many business owners have opted in for this chance to get their products featured without having to fork up $3,000 for a full page ad in one sitting.” Lisa explained that she is “completely satisfied with the service” and that using a buy now pay later service can increase trust and get more people excited to work with you. In advertising, giving customers “a chance to see if their deposit is working for them” helps attract and retain customers.
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