How Is B2B Buy Now Pay Later Helping SMEs Grow?

The Buy Now Pay Later (BNPL) credit facility continues to be one of the most successful economic trends of recent times. BNPL refers to a transaction system in which customers can buy their needed products from a seller without having to pay for them upfront. A short-term  financing alternative with no-cost EMIs, this facility has mainly catered to a business-to-customer transaction model.  However, with the popularity of e-commerce rising exponentially, BNPL has emerged as a viable supply chain financing solution for SMEs. Moreover, several k_reliable FinTech services like KredX have paved the way for Buy Now Pay Later in B2B. Consequently, the BNPL industry in India is projected to grow ten-fold in upcoming years.

Why Buy Now Pay Later In B2B Is Beneficial?

Nearly 75 million small businesses form the MSME sector in India, contributing to around one-third of the GDP. However, most of these do not have access to formal credit. Institutional lenders often see SMEs as high-risk borrowers, as they lack assets and capital. Moreover, it is estimated that the overall credit gap in this country’s MSME sector is around 380 Billion Dollars. BNPL model can come to the aid of SMEs in the following ways:

• A small business company usually purchases raw materials from another to manufacture a product. The financial intermediaries pay off the upfront payment of the total selling price on behalf of the buyers in a BNPL model. The buyer, in return, has the facility to pay off the purchasing amount over a period of time via instalments to its financier.

Naturally, this more straightforward regulatory framework is helpful for small businesses facing a budget-crunch issue. They can opt to buy the necessary equipment to keep their business functioning even without an unrestrained cash flow. Moreover, as SMEs concentrate more on cost-reduction through process optimisation, BNPL is becoming a salient element of this industrial sector.

• The frictionless sales process ensures a better user experience of the digital transaction method. Furthermore, this entire procedure effectively increases the seller’s average order value and the value proposition of the SMEs. As a result, adapting to BNPL models will likely result in higher conversion rates.
• Opting for the BNPL model is affordable when compared to credit cards. The borrower does not have to bear the extra costs of the GST, cash advance, or annual maintenance fee for the Buy Now Pay Later scheme. 

Moreover, BNPL is also a cost-effective measure when it comes to missed payments. The credit card interest rate on missed payments can be as high as 48%. For a BNPL service, the interest rate remains between 0 – 24%.

• BNPL has a fixed repayment schedule, but there is no need for collateral. In this way, this scheme is analogous to any other unsecured consumer or personal loan.
• This decentralised lending protocol offers a comparatively simpler documentation process. First-time buyers need to fill up the KYC form on the BNPL provider’s platform. In addition, the relaxed eligibility criteria allow a wide range of buyers and consumers to opt for this scheme.  

Bottom Line

Buy Now Pay Later models have the potential to revolutionise the market of small and medium-sized enterprises. This scheme allows a buyer to get a product and pay the price later in small increments to its financer. Meanwhile, the BNPL provider, who finances the buyer, pays the seller invoice immediately after the purchase.  This flexible supply chain financing solution comes in handy for SMEs struggling for substantial capital. As an alternative to conventional credit, the Buy Now Pay Later in the B2B model has already significantly impacted the digitised e-commerce field.