1) What Is Buy Now Pay Later For B2B?
2) Why Are BNPL Payment Options A Substantial Recourse For Indian MSMEs?
In India, businesses have conventionally reached out to traditional institutional lenders to acquire funding for their trade. With more globalised and digitised approaches taking centre stage recently, business owners are confident about turning to alternative financing solutions.
So, if you are looking to opt for such an alternative to secure a working capital boost for your business, consider the BNPL payment option. A number of leading fintech companies in India, like KredX, are offering supply-chain-based short-term financing solutions. It is preferred by many small businesses looking to grow sustainably.
In a business-to-business transaction model, Buy Now Pay Later is a financing option that allows a business owner to buy the necessary products and pay the price later. The ever-expanding MSME sector struggles to access formal credit despite offering employment to around 11 crore people. There is a significant number of business buyers looking for sellers offering BNPL for B2B transactions.
Small businesses need raw materials from merchants to maintain their production circle. However, a lack of unrestrained cashflow presents a significant obstacle for these businesses. As MSMEs do not have proper collateral or assets, institutional lenders consider them high-risk borrowers. As a result, only 16% of this sector can avail formal credit.
BNPL payment option, alternatively, offers customised solutions by sanctioning funds needed for the sustenance of these businesses. BNPL providers work as financial intermediaries paying off the upfront payment charges of the total invoice value to sellers on behalf of buyers. These buyers have the scope of reimbursing these fintech agencies over a stipulated period of time via instalments.
This immediate financing allows MSMEs to acquire the products needed without bearing the pressure of a hefty lump sum payment. Moreover, the sanctioned outlay allows them to concentrate on investment and expansion plans without worrying about any adverse effect on the balance sheets. For B2B sellers, offering BNPL gives them a lucrative opportunity to benefit from a significant increase in sales.
The credit ecosystem of the Indian economy remains centred around traditional Blue-Chip companies. As a result, the formal credit disbursal system has mostly excluded micro, small and medium-sized industries. As the MSME sector remains a cornerstone for India's economic upturn, such constraints are counterproductive to the rapid development of the nation's booming industrial sector.
BNPL for B2B, consequently, is capable of levelling the playing field for small business buyers. This user-friendly transaction mechanism can offer these enterprises a much-needed edge to make a mark in the systematised mainstream competitive marketplace. Its automated, paperless and straightforward monitory dispensation is a lucrative option for the MSMEs looking for alternative payment procedures like point-of-sale loans.
Additionally, this revolving credit extended by BNPL providers allows business owners to make purchases without limitation. Customers also enjoy an extended credit period as merchants integrating the BNPL payment option will want to increase their cart conversion rates by incentivising the business buyers.
Moreover, Buy Now Pay Later is a reliable option for the Indian product market, as the uncategorised sectors' revenue stream is largely unstructured. As BNPL for B2B prioritises cash flow-based metrics over conventional approaches, financial requirements of specific business sectors can be met via customised propositions.
With experts projecting that the Buy Now Pay Later market will grow ten-fold in the near future, it stands a chance to have a massive impact on the B2B segment. The following are some of the benefits of BNPL for B2B buyers:
If a business buyer opts for credit, there are hefty additional charges such as paying cash advances, yearly maintenance fees or GST. On the other hand, BNPL can negate this extra spending for the borrowers.
Moreover, BNPL is a viable alternative to credit cards for its cost-effective regulations when it comes to missed payments. To elaborate, the interest for missed payments on a credit card can go up as high as 48%. Whereas, for the BNPL payment option, the interest rate on the outstanding balance ranges from 0% to 25% on a case-to-case basis.
A comparatively lenient framework of this lending protocol allows borrowers to sign up for these services without a prolonged application and waiting period. Most major financial technology companies ensure buyers can purchase the products in less than 2 minutes by filling out a simple KYC form.
Additionally, the scope of this framework is not as restrictive as its traditional lender counterpart. So, the resulting broader eligibility criterion allows a higher number of small and medium enterprises to opt for this facility.
As mentioned above, traditional financial institutions avoid lending to small businesses as they have fewer capital and assets to put up as collateral. This inability to gain funding, in turn, can flag these businesses for low creditworthiness when they apply for a loan in the future. This cyclical embargo can drastically hurt a business’s organic growth.
BNPL payment option, however, takes into consideration alternative credit data when assessing the credibility of a potential borrower before sanctioning a fund. As a result, New-to-Credit [NTC] businesses too can sign up for this credit facility. Additionally, business buyers can significantly improve their CIBIL scores by paying off small ticket loans.
The BNPL payment option has opened up new horizons for the MSME sector of India, which had historically struggled for formal credit funding due to a lack of assets. Several reliable FinTech service providers like KredX have emerged as a one-stop solution to the liquidity problems of these small businesses. By offering point-of-sale short-term financing alternatives, these providers ensure a hassle-free user experience for the borrowers.
Yes, sellers can improve the Cart Conversion Rate by integrating the BNPL payment option. Moreover, they can save up on Merchant Discount Rates by eliminating credit and debit card processing fees.
Major fintech services make sure the API integration is completed within 24 hours.
A business must have a minimum credit score of 650 to get funding sanctioned from BNPL providers.
Within the stipulated credit period, a borrower can repay multiple times.