Buy Now Pay Later Brings Liquidity on Demand for Small Businesses

The hype around buy now, pay later (BNPL) services in the consumer world has reached a fever pitch, and it’s pretty clear why. With more than half of Americans said to be living paycheck to paycheck, BNPL and other non-traditional payment offerings make it easier for consumers to make much larger purchases by splitting their payments into more affordable chunks spread out over weeks or months.

That kind of flexibility isn’t only suitable for cash-strapped consumers — it’s also incredibly enticing for small and medium-sized businesses (SMBs) that might be struggling to manage their cash flow. That’s why we’re now hearing rumblings around BNPL and other flexible payment options in the B2B space, too.

“It’s actually a very viable small business tool,” Robert Clarkson, chief revenue officer at Payoneer, said in an interview with PYMNTS. “The same flexibility BNPL provides for consumers translates nicely to the needs of small businesses around the world as they buy the services, the inventory or anything else needed to grow their businesses.”

Read more: 53% of Upper-Income Americans Live Paycheck to Paycheck

Indeed, BNPL is so viable for SMBs that Clarkson believes it has already become the favored payment method in many situations where they might need financing. What’s so great about BNPL is that it gives SMBs more options in managing their cash flow, which is essential to any business’ health — especially for smaller entities that don’t have any savings to fall back on.

“Cash flow is always a big metric in any size company, but the smaller it gets, the more dependent that company is on a day-to-day basis,” Clarkson said.

Stretching out days payable by even a few weeks through BNPL, Clarkson said, could mean the difference between an SMB being able to buy next week’s inventory or having to hold off. “SMBS just don’t have that war chest that gives them the same smoothness as large organizations,” he explained. “So they turn to companies like us to make sure they have these options as a backup.”

Of course, BNPL is just one of several financing tools SMBs can leverage depending on their needs, Clarkson said. While BNPL may be better for companies seeking transactional financing, those in search of ongoing financing may need more flexible options that give them access to working capital when they need it.

“If you’re going to be a good partner to SMBs around the world, you need to be able to move between those two different solutions based on the type of products and services they’re purchasing,” he noted.

The biggest advantage any alternative form of financing can offer is flexibility. In the business world, companies can choose from multiple formulas to meet their needs and different time horizons, including the ability to spread purchases across as many payments as they want. As Clarkson explained, alternative methods can match or even exceed the flexibility that credit cards and loans offer, so companies can pick and choose the kinds of terms they want for their financing.

“The needs of small businesses move around very quickly,” he said, “and they need to be able to adjust their financing capabilities and options based on those needs.”

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Clarkson stressed that there’s also no real ceiling or transaction limit in BNPL for B2B customers, as long as the buyer can make the payments. Further, he said, it’s a great option for financing logistically complex cross-border transactions. In fact, the requirement for buyers to pay early for a product that has to be shipped halfway around the world creates a need for BNPL, Clarkson argued, because many companies either don’t want to pay so far in advance or aren’t in a position to do so.

“When you’re building a fast-moving industry like this, there are a lot of different levers you can pull,” he added.

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Clarkson had some helpful advice for SMBs: Take a closer look at the size, frequency and velocity of their regular business transactions to identify the peaks and valleys in their account balances. By using BNPL strategically, he said, some businesses may be better able to balance those transactions in a way that ensures they have more cash flow when they need it.

“If you want to smooth some of those peaks and troughs, this is the kind of product that does that,” he said. “Essentially, it takes a peak and distributes it over a longer period of time.”