Definition of Buy Now, Pay Later (BNPL)
Buy Now, Pay Later (BNPL) is a payment and financing model that allows a buyer to receive a product or service immediately while paying for it over time in installments. Instead of paying the full amount upfront, the buyer agrees to a predefined payment schedule (such as monthly or quarterly payments). In many BNPL models, a third-party financing provider pays the seller upfront and then collects the installment payments from the buyer.
What BNPL Includes
BNPL arrangements typically include installment payment plans, credit underwriting of the buyer, payment scheduling, billing, and collections. The financing provider may charge a fee or interest, which can be paid by the buyer, the seller, or split between both. BNPL can be offered for fixed-term purchases, subscriptions, or multi-year contracts.
How BNPL Works
At the point of purchase, the buyer selects a BNPL option instead of paying in full. The financing provider evaluates the buyer’s creditworthiness, often in real time. If approved, the provider pays the seller the full contract value (minus any fees) upfront. The buyer then repays the financing provider according to the agreed schedule. From the seller’s perspective, the transaction settles immediately, even though the buyer pays over time.
BNPL Explained for a General Audience
BNPL lets customers use a product now and pay for it later in smaller, more manageable payments. Instead of a large upfront bill, the cost is spread over time. This makes purchases easier to approve and budget for, especially for higher-priced items or services. The seller still gets paid right away, while the BNPL provider handles billing and payment collection.
BNPL in B2B vs. Consumer Markets
BNPL is widely known in consumer retail, but it is increasingly used in B2B transactions. In B2B BNPL, installment plans may span months or years and apply to software, services, or equipment purchases. B2B BNPL often involves higher contract values, more robust underwriting, and customized payment terms compared to consumer BNPL.
BNPL and Sales Conversion
BNPL can significantly improve conversion rates by reducing upfront payment friction. Buyers who might hesitate due to budget constraints are more likely to proceed when offered flexible payment options. For sellers, BNPL becomes a sales enablement tool rather than just a payment method.
BNPL and Cash Flow
One of the key benefits of BNPL for sellers is improved cash flow. Even though the buyer pays over time, the seller receives funds immediately. This allows companies to reinvest in growth, cover operating expenses, and reduce reliance on traditional credit or delayed payment terms.
BNPL and Risk Management
In BNPL models where a third party is involved, the financing provider assumes the credit and default risk of the buyer. This removes the burden of collections and bad debt from the seller. Risk-based pricing is often used to adjust fees or terms based on the buyer’s credit profile.
BNPL and Embedded Finance
BNPL is a core example of embedded finance, where financing is integrated directly into the purchase or sales workflow. When BNPL is embedded into quoting or checkout, it becomes a natural part of the buying experience rather than a separate financing step.
Summary
Buy Now, Pay Later enables buyers to access products or services immediately while spreading payments over time. For sellers, it delivers upfront cash, faster deal closure, and reduced payment risk. As BNPL expands beyond consumer retail into B2B and SaaS, it has become a powerful tool for improving conversion, cash flow, and overall purchasing flexibility.
