Have you had conversations with a lead or prospective customer, only to have him or her freeze when it is time to make payment? The excuses may range from not having spare cash to fund the purchase, not having it in the budget or something. Overall, the customer agrees with you that he has a need for the product or service, but does not have the money to effect the purchase right away.
Typically, most customer-seller conversations end at this point unless the seller is willing to extend credit facilities to the customer (which is often not the case). But it doesn’t have to continue that way in 2023 for your business. There is a model that can help the customer buy the product from you right away, without keeping your business capital tied down.
Many small business owners may cringe when they hear Buy-Now-Pay-Later because it sounds like they would have to wait to get paid even after delivering the goods. But that’s not how it works.
Buy-Now-Pay-Later is a short-term financing structure that allows your customers to purchase an item and pay for them in the future, often interest–free. The most popular of this model allows the consumer pay in four timed and interest-free instalments, and it recently started gaining popularity in highly populated African countries like Nigeria, Ethiopia, and Kenya, this emerging trend may be the gateway to immense financial development.
To answer the question you have in mind, you (the seller) get paid in full immediately, and do not have to wait till the customer finishes paying all the instalments.
So, who pays now?
There is a financial institution that stands as the financing partner and the go-between in this sort of transaction. They pay you in full and then retrieve the money from the customer based on the agreed number of instalments.
By adopting this and encouraging your customers to, you’d be helping them buy those products they need right away, without having to cripple your business in the process. Imagine how helpful this would be when a customer is trying to buy medical supplies or other basic needs necessary for survival. You are also helping them achieve this without having to take loans, pay interests and compound their finances.
Note that this is completely different from the practice where the customer makes a down payment and schedules instalment payments to be made over a period; only collecting the product after the payment has been made in full or up to 80%. This practice is common among some electronics dealers, and it is called Lay-bys, although I like to call it – Pay first, collect later system.
The Buy-Now-Pay-Later operates differently altogether, and following up on the instalment payments from the customer is totally not your responsibility.
PayNXT360, a strategy research and consulting firm offering business intelligence stated in its ‘4th Quarter 2021 Buy Now Pay Later survey’ that the Buy-Now-Pay-Later payment industry in Africa and the Middle East will surpass $7, 187.8 million in revenue in 2022, and achieve a growth rate of 99.8% – all thanks to the surge in e-commerce penetration.
So, why not bring this option forward to your customers?
There is one that allows the customers to pay in instalments over a six-month window. There is another in Nigeria as well also offering interest-free instalments over three months. There is also one that charges you the merchant a transaction fee, and charges the customers a tiny interest rate monthly. But in all cases, the merchant gets full payment for the product/services immediately.
I will avoid mentioning any of them in this article. But as an MSME owner, you can do a simple search online, come up with options, read up their mode of operation and see which will work well with the people that make up your target market.
What to keep in mind.
This model thrives in a system that allows for digital identity verification, so if your customers are largely not digitally inclined, you could have some challenges getting them to consider it. The use of national identification numbers may help in this regard, as the goal is to verify the customers identity.
Before approval, the provider might also access the customer’s credit records, and see if he or she has any outstanding debts/loans with any bank or financial institution. The provider would also want to ascertain that the customer has a regular source of income and that he can pay up the cost within the timeframe without affecting his living standard.
For instance, someone who has a monthly salary of N100,000 cannot purchase a N300,000 product under a provider who uses three instalments. The logic is that it is clearly impossible for him to pay in three instalments as he still has to make living expenses.
These are some of the things you may consider while researching a BNPL provider to recommend to your customers. Depending on the price range of your product, you might want to go with a BNPL that allows payment to be spread into as much as 10 instalments.
The bottom line is to provide your customers and prospective customers with options and convenience. You will get more information while doing your search and reading their terms.