How Buy Now Pay Later Programs Affect Retailer Cash Flow

6 minute read

The Buy Now Pay Later (BNPL) Trend

The Buy Now Pay Later (BNPL) Trend has been gaining popularity in recent years. BNPL allows customers to make purchases without having to pay for them immediately, with payment plans offered in installments. This option has become popular with consumers who prefer a more flexible payment plan. BNPL providers offer interest-free payment plans with soft credit checks, making it an attractive option for consumers who are looking to make purchases without adding to their credit card debt

With the rise of BNPL services, retailers are also starting to take notice. Retailers are offering BNPL options to increase conversion rates and average transaction sizes.

Definition of Buy Now Pay Later

Buy Now Pay Later (BNPL) is a payment option that allows customers to make purchases and delay paying for them until a later date. Customers make a downpayment at the time of sale and pay the remaining balance in installments. BNPL services often don't require credit checks and promise no interest or minimal interest on the balance owed. This option has become popular in with younger shoppers because it allows them to manage their budgets and make purchases they may not have been able to afford otherwise.

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Benefits of Buy Now Pay Later for Consumers

Buy Now Pay Later (BNPL) offers a range of benefits to consumers. The most important is probably flexible payment plans. This means that customers are given the option to pay for their purchases in installments instead of paying the full amount upfront. This is particularly useful for customers who may not have the financial resources to make a large payment at once but still want to make a purchase.

Another benefit of BNPL for consumers is increased purchasing power. With the option of splitting payments into installments, customers can buy more expensive items that they may not have been able to afford otherwise. This can help customers to spread out their expenses over a longer period, making it easier to manage their budgets.

Furthermore, BNPL can be particularly attractive for those who may not have a credit card or are not able to qualify for traditional credit. BNPL providers often do not require credit checks or have minimal checks, making it easier for consumers to access credit without the strict requirements of traditional credit products. This allows more people to make purchases they need or want while still managing their financial situation.

Benefits of Buy Now Pay Later for Retailers

Retailers can benefit from offering Buy Now Pay Later (BNPL) options to their customers. Here are some of the advantages for retailers:

Online Shopping & Conversion Rates: With the increasing popularity of online shopping, retailers who offer BNPL options can see a significant boost in their conversion rates.

Interest-Free Installments & Soft Credit Checks: Many BNPL providers offer interest-free installment plans, which can be a big draw for customers who are looking for affordable payment options.

Higher Ticket Size: Offering BNPL options can also lead to an increase in the average ticket size for retailers. This is because customers may be more likely to purchase higher-priced items if they have the option to spread out the payments over time. Additionally, some BNPL providers may offer higher credit limits than a customer's credit card, allowing them to make larger purchases.

Risks of Buy Now Pay Later for Retailers

BNPL fraud can happen when a customer uses a false identity or stolen credit card information to make a purchase. It is important for retailers to have fraud detection systems in place to prevent this from happening. It is also important to verify customer information and monitor suspicious transactions.

Another risk is chargebacks. Chargebacks can occur when a customer disputes a transaction with their credit card company, and the charge is refunded to the customer. Retailers can experience losses from chargebacks, particularly if they are not able to provide proof that the customer received the product or service.

With buy now pay later programs, the risk of chargebacks may be higher because customers have the ability to delay payment until after they have received the goods or services. This can make it more difficult for merchants to dispute chargeback claims and recover lost funds.

It is important for retailers to have a clear refund policy, and to keep records of all transactions and communications with customers.

How Does Buy Now Pay Later Affect Cash Flow?

Buy Now Pay Later (BNPL) can significantly affect a merchant's cash flow. When a customer uses a Buy Now Pay Later option to make a purchase, the merchant receives only a portion of the purchase price upfront. BNPL providers pay about 75% of the total purchase price upfront and the remaining amount to the merchant after deducting fees.

Although the merchant receives a smaller amount of money initially, they can increase sales due to the convenience of BNPL options. However, the timing of the payment can negatively impact cash flow if the merchant relies on the payment to fund their operations. The payment from the BNPL provider may be delayed by a few days or even weeks, which can affect the merchant's ability to pay bills, buy inventory, and manage daily operations.

Merchants should also be aware of the potential for chargebacks and fraud when using BNPL options. Chargebacks occur when a customer disputes a purchase made through BNPL, and the BNPL provider reverses the payment to the merchant. Merchants should be prepared to provide evidence that the purchase was legitimate to avoid chargebacks. Additionally, merchants should implement measures to prevent fraud, such as requiring verification of the customer's identity and billing address.


Buy Now Pay Later (BNPL) programs have become increasingly popular with consumers, particularly millennials and Gen Z. With flexible payment plans, increased purchasing power, and no interest or credit checks, it's no surprise that more people are opting for BNPL as a payment option. For retailers, BNPL can increase conversion rates, boost the average transaction size, and provide a competitive edge.

However, there are also risks to consider, including fraud and chargebacks. Additionally, retailers need to be aware of how BNPL can affect their cash flow, as they may not receive the full payment upfront and may need to wait for installment payments to come in. Overall, while BNPL offers benefits for both consumers and retailers, it's important to weigh the risks and consider the impact on cash flow before deciding to offer this payment option.

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