Why Small Businesses Need to Embrace a BNPL Model to Succeed

Small businesses are reporting on average 30 percent of monthly invoiced sales are overdue, which presents a difficult reality for owners struggling to keep their business afloat in what is presently a volatile economy. One of the first steps to mitigate financial risk in this situation is to adopt a buy now, pay later (BNPL) mentality.

Until the economy is on the upswing, delayed payments will become the new norm for businesses. While this won’t put a big-box retailer in the red, it could be the difference between a small business surviving and filing for bankruptcy, especially if there’s a pattern of delayed invoice payments.

Adopting a new mentality and adjusting your payment structure to allow for flexible payment terms might seem time consuming, but it's well worth investing in to stabilize your cash flow. Here are two important reasons why:

• The BNPL model can boost customer conversion and sales: Leveraging this model relieves the burden of paying upfront for customers, allowing them to split payment into smaller, more manageable installments. This could in turn increase conversions and boost volume of purchases, as it gives them confidence in their ability to pay invoicing balances as the product or service is more accessible.
• It offers brand appeal: In a competitive market, it's important for SMBs to adapt to changing consumer preferences. By implementing a BNPL model, owners can position themselves as customer-centric and stand out amongst competitors that don’t offer this payment option.

In addition to flexible payment terms, SMBs should also be taking the following actions to ensure they're continuing to mitigate financial risk:

1. Revisit your invoicing process. Late payments are a big source of cashflow delays and create financial risk. Optimize this process and ensure you’re billing clients promptly without delay.
2. Create a rainy-day fund. Setting aside an emergency fund or financial cushion for unexpected costs will help protect your business when times are tough. Try to always have three months’ work of operating expenses set aside.
3. Cut unnecessary expenses. Audit your current expenses and identify where you can reduce costs.
4. Tighten your credit policy. It’s important you implement late fees, ask for a deposit upfront, or even offer an early-payment discount. By setting clear payment terms, you’ll be able to settle invoices promptly.
5. Strengthen the follow-up process. You should be diligent in following up on any unpaid or overdue invoices. Using automated reminders can make this process easier and more efficient.

The first step is understanding that delayed payments will happen, if it hasn’t already. This is why it’s critical to evaluate your payment structure now and get ahead of one of the busiest buying seasons of the year. Invoicing doesn’t need to be difficult, and when done well, can be the difference between a successful month and being in the red (or worse).

Petr Marek is the founder and CEO of Invoice Home, an invoice generating platform designed for small businesses, freelancers and entrepreneurs.