Buy now, pay later is problematic for small businesses, expert says

Buy now, pay later (BNPL) is a growing industry, giving consumers the option to break the cost of their purchases into smaller installments. However, one expert said this form of payment may not be the right answer for small businesses. 

BNPL's global transaction value reached $120 billion in 2021, according to a new report from GlobalData. And the sector is expected to continue growing, with GlobalData projecting that the BNPL market could reach $576 billion by 2026.

But small businesses are struggling amid the option for consumers to pay later, according to Lara Hodgson, the co-founder, president and CEO of Now. 

"When people ask me if I'm ‘buy now, pay later,' I'm like 'I'm sell now, get paid now,'" Hodgson said at the FinTech South conference in Atlanta, Georgia. "But that nobody is paying attention to the burden that buy now, pay later puts on is surprising." 

If you need help paying down your BNPL debt, you could consider using a personal loan to avoid late fees. Visit Credible to find your personalized interest rate without affecting your credit score.

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Cheapest capital is borrowing from venders, expert says

Interest rates are on the rise, but there's another way that businesses borrow money while keeping their interest rates at 0%, Hodgson said. This is by "borrowing" from their vendors, or not paying an invoice as soon as they receive it. By pushing back the time that it takes for them to pay the invoice, businesses essentially "borrow money" and improve their cash flow without paying interest. 

"The largest lender in the United States is not a financial institution, and it's not SBA," Hodgson said. "It is collectively small businesses. So imagine if instead of telling them to borrow more money, we were to relieve them of that burden and allow the financial institutions in the capital markets who can do this way more efficiently instead of having another bankruptcy."

She said that this type of "lending has become so prominent that it could even crash the economy if reversed."

"For most large companies, if you said tomorrow that you have to pay every invoice upon receipt, which everyone in this room knows is technically possible, [...] the net margins of most businesses would drop double digits," Hodgson said. "Wall Street would fold in and our economy would crash."

If you have taken on debt through buy now, pay later and need help paying it down, a personal loan can help. You can visit Credible to compare multiple personal loan lenders at once and choose the one with the best interest rate.

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Companies continue to enter BNPL market despite risks

BNPL providers — such as Affirm, Klarna and Paypal — partner with retailers to allow shoppers the ability to split the cost of their online purchases into multiple installments at checkout. These interest-free payments are generally due within a few weeks after the time of purchase. However, missed payments can result in late fees and other penalties.

Despite the risks to businesses and consumers, the BNPL sector continues to grow. At its WWDC event in June, Apple announced its forthcoming BNPL offering, Apple Pay Later.

Big Tech's entrance into the BNPL market also comes as experts continue to call for more regulations. Last year, the Consumer Financial Protection Bureau (CFPB) opened an inquiry about the usage and safety of BNPL programs.

"BNPL products do not offer the standard consumer protections required of credit card providers or other regulated lenders, and their opacity regarding fees and repayment terms could easily place unwitting consumers into harmful, unaffordable debt," Mike Calhoun, the president of the Center for Responsible Lending (CRL), said in a statement late last year. "Regulators should ensure that BNPL lenders make loans only after determining the borrower’s ability to repay."

If you have used BNPL and are looking for help to repay your debt, you could consider using a personal loan. To see if this is the right option for you, contact Credible to speak to a loan expert and get your questions answered.

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