What is Buy Now, Pay Later?

Buy now, pay later is an alternative payment method that enables customers to buy and utilize products/services without paying full payment upfront. In this type of payment model, customers hold the ability to finance purchases and pay them back in fixed installments over a certain time.

In other words, Buy Now Pay Later is a financing option that allows consumers to purchase products immediately and make payments in installments over time, typically without interest if payments are made on schedule.

This is how it works: When a customer purchases a service/product, they pay a portion of the total cost upfront and then pay for the remainder balance in equal installments over a set period. The set period can either be long-term or short-term depending on the plan.

Key Components of Buy Now Pay Later

The payment structure is often automated, with installments automatically charged to the linked credit card or bank account on pre-scheduled dates. Most short-term BNPL services do not charge interest if payments are made on time; however, some may charge late fees for missed payments.

Some Examples of Buy Now Pay Later

Popular BNPL providers include Klarna, PayPal, Sezzle, AfterPay, etc. Many prominent retailers now offer such services directly at checkout, both online and in-store.

Klarna

It provides multiple payment options, including Pay-in-4 and Pay-in-30 days plans. This is often used by retailers such as Etsy and Sephora.

Afterpay

It provides a “pay-in-four” model, splitting purchases into four interest-free installments over six weeks.

Sezzle

It allows users to split payments into four interest-free installments over six weeks. It is interest-free and involves a soft credit check. In easier terms, soft credit check means, a soft credit inquiry to assess a user’s capability to completely pay for the purchase, and set a spending limit.

PayPal Credit

It provides a line of revolving credit for online purchases. It is accepted at numerous online retailers, such as eBay and Walmart.

SaaS Scenario Example

Several BNPL systems are designed for e-commerce, but some are tailor-made for SaaS businesses, majorly subscription-based services. They allow customers to pay software subscription fees over time, improving conversion and reducing churn.

SaaSPay is a BNPL plugin specifically built for SaaS vendors. It allows annual software subscriptions to be paid monthly while the vendor receives complete annual upfront value.

How do buy now, pay later services work?

Buy now, pay later services are often an option in the payment flow, alongside credit cards and other modes of payment. When customers make a one-time purchase, they simply opt for a buy now, pay later provider in the payment form. In turn, they are redirected to the provider’s app or website to create an account or log in. Customers choose whether to accept the terms of the repayment plan, generally choosing bi-weekly or per-month-based installments, and complete their purchase.

As soon as the purchase is complete, businesses get complete payment upfront minus any fee deductions. Customers pay their installments directly to the buy now, pay later provider, often with no interest and no additional fees if payment is made on time.

What are the business benefits of buy now, pay later?

Some business benefits of Buy Now, Pay Later include increased sales and revenue for merchants, higher average order value, expansion of customer base, improved cash flow, improved customer experience, and competitive advantage over other providers.

Increased Sales and Revenue

BNPL typically drives higher conversion rates as customers are likely to complete purchases when they can spread payments over time. This, in turn, reduces cart abandonment rates, particularly for higher-priced products that may seem expensive to the pocket upfront.

Higher Average Order Values

When customers can pay in installments, they are likely to feel comfortable purchasing expensive products/services or adding additional products to the cart. This psychological effect of reduced immediate financial impact leads to larger transaction sizes.

Expanded Customer Base

BNPL services are attractive for customers who might not have access to traditional credit cards or prefer not to use them. This includes international customers, younger buyer segments, or those credit-averse customers who still want financing flexibility.

Improved Cash Flow

Most BNPL providers pay merchants upfront; this means that businesses get immediate payment while customers can pay over time. This helps to reduce any risks of non-payment that businesses might have to face, otherwise.

Improved Customer Experience

The availability of flexible payment options creates a customer-friendly environment and shopping experience. It increases customer satisfaction and overall loyalty with your brand. This also keeps the checkout experience quick and smooth.

Competitive Advantage

As BNPL becomes more anticipated by consumers, offering such services allows businesses to stay ahead of other competitors rendering similar services.

What are some risks of BNPL (Buy Now, Pay Later) for customers?

Overspending, late fees and penalties, credit score impact, multi-payment obligations, limited consumer protection, and automatic payment risks are some downsides of the BNPL payment structure.

Here is breakdown of each of the mentioned downsides:

Overspending

The reduced immediate financial impact can lead to impulse buying and spending beyond means. Customers thinking that they are not paying the full amount upfront can lose track of how much they have committed to pay across various BNPL purchases.

Example: A small startup subscribes to a project management tool that costs $1,200/year. Through a SaaS-focused BNPL plan (like those offered by platforms such as SaaSPay or Capchase), the startup splits the annual fee into 12 monthly payments of $100.

Encouraged by the lower monthly cost, the founders decide to subscribe to

• A collaboration platform for $800/year → $67/month
• A marketing automation tool for $1,800/year → $150/month

Now the startup is on the hook for $317/month across three SaaS subscriptions. It is far more than their initial budget. What seemed affordable (breakdown into monthly payments) becomes a cumulative $3,800/year commitment.

Solution: Customers can track a strict monthly BNPL budget using a spreadsheet or any budgeting application to ensure they treat their future installments as already spent to avoid overspending, or incurring any charges on missed payments.

Late fees and penalties

Missing a payment can lead to late fees that can quickly add up. Some providers may charge fees ranging from $7 to $24 per missed payment, and this can compound if customers continue to miss subsequent payments.

Solution: Customers can set clear calendar reminders and enable autopay to avoid missing due dates and racking up escalating BNPL fees.

Credit score impact

Although several BNPL services do not perform hard credit checks initially, missed payments can be reported to credit bureaus and damage customers’ credit scores.

Solution: Customers must pay BNPL installments on time and stay aware of whether the provider reports to credit bureaus to protect the credit score.

Multiple payment obligations

Using several BNPL services simultaneously can create a web of due dates and amounts to pay. It can make it challenging to manage a budget, and this can also increase the risk of missed or non-payments.

Example: A 2025 CFPB report found 63% of BNPL users carried multiple concurrent loans, many with monthly plans, and 20% used it monthly, making budgeting a challenge.

Solution: It is best for customers to stick to one active BNPL plan at a time and track all the payment schedules to avoid overlapping obligations.

Limited customer protection

BNPL can have fewer consumer protections compared to credit card purchases. For instance, a customer might have limited capability to dispute charges or ask for chargebacks on defective products or improper services delivered.

Solution: Customers must read provider terms carefully before using BNPL and if they are in doubt it is best to prefer regulated payment modes such as credit cards with better rights to dispute.

Automatic payment risks

As payments are typically automated, insufficient funds in the customer’s account can lead to overdraft fees from their bank in addition to late fees from the BNPL provider.

Example:

A person opts for a BNPL plan to pay for a $200 laptop in four installments of $50 each. He enables auto-pay using his debit card. However, during the payment week, he’s low on cash i.e. just a few dollars short in his checking account.

Outcome:

• The automatic BNPL debit attempts to process, but his account has insufficient funds.
• His bank charges an overdraft fee (typically $30–$35).
• The BNPL provider also applies a late fee (around $7–$8).

In the face of the given scenario, one $50 installment turns into a $95+ hit due to the combination of overdraft and BNPL charges.

Solution: To avoid automatic payment risks, customers can keep a buffer in the bank account before auto-pay cycles or switch to manual payments to avoid extra fees.

What are the types of BNPL plans?

BNPL models are of various kinds, such as short-term installment plans, medium-term financing, long-term financing, revolving credit plans, interest-free promotional plans, layaway-style plans, point-of-sale financing, and Pay-in-3 or Pay-in-6 plans.

Here is breakdown of each of the mentioned types.

Short-term installment plans

Being the most common BNPL offerings, they split purchases into 4 equal payments over 6-8 weeks. Customers pay approximately 25% upfront, and three additional payments follow every 2 weeks. Some popular providers, such as Klarna, AfterPay, and Sezzle, offer such plans, usually involving zero interest charges if payments are on time.

Medium-term financing

These plans are limited to large-scale purchases such as furniture, appliances, and more, and often have a time window of 3-24 months. Affirm and Klarna offer such payment options, which may include interest charges depending on creditworthiness and any specific terms.

Long-term financing

For high-value purchases such as medical procedures and home improvement services, some BNPL providers render financing terms extending from 12 months to several years. These plans include interest and require more thorough credit checks.

Revolving credit plans

Some BNPL services render credit lines similar to credit cards, where customers have a spending limit that replenishes as customers make payments.

Interest-free promotional plans

These types of plans offer 0% interest for a specific promotional period, often 6-13 months, given that customers make given payments and pay off the amount before the promotional period ends. After the promotional period, standard interest rates apply.

Layaway-style plans

Customers make payments before receiving goods, but with flexible and shorter payment schedules such as monthly, weekly, or bi-weekly.

For instance, some retailers and fintech organizations offer online layaway where customers pay overtime before shipment. It involves faster appeal and digital onboarding.

Example: An Apple Premium Reseller in Norway used Two to offer B2B customers a plan to pay for devices in monthly installments before delivery. Here, online layaway is made digital and quick.

Point-of-sale financing

In point-of-sale financing, customers have options of instant financing at checkout, both online and in-store, with approval decisions made in seconds. Terms can vary based on the purchase amount and creditworthiness of customers.

Example: A B2B buyer in the U.S. uses Capchase Pay at Stripe checkout for a $120,000 software stack purchase. They receive instant approval and split payment over 12 months, while the seller gets full upfront value.

Pay-in-3 or Pay-in-6

Some services offer flexibility in the number of installments, allowing customers to choose between 3 or 6 payments depending on their preference and the purchase amount.

Example: A small construction firm orders $90,000 of building materials via Hokodo, choosing to pay in six bi-monthly installments, keeping cash available for ongoing projects.

Why do businesses offer Buy Now Pay Later payment plans?

Businesses offer BNPL (Buy Now Pay Later) payment plans to increase conversion rates, raise average order value, improve cash flow, attract and retain young buyer segments, and cut cart abandonment rates. Here are descriptions of each of the mentioned reasons.

To increase conversion rates

When businesses offer BNPL, it lowers barriers to making a purchase, allowing the customer to buy products they otherwise could not afford upfront.

To increase average order value

When customers can split payments over time, they often make more purchases or opt for higher-priced products.

To improve cash flow

BNPL providers pay merchants the full amount minus fees while taking on the consumer payment risk. It means that businesses earn their revenue right away, ensuring smooth and fast cash flow that can be used for funding business goals.

To attract new customers

BNPL is appealing to younger segments of customers, such as Gen Z and millennials. It attracts budget-conscious buyers and encourages them to make repeat purchases.

To reduce cart abandonment

Several shoppers abandon their carts when facing upfront costs. BNPL provides them relief as they do not face upfront costs and can make the partial payment that does not drain their pocket.

Why do BNPL services use automated payment collection?

In some cases, BNPL services utilize automated payment methods for reducing customer friction, ensuring constant payment collections, minimizing any overhead cost, and improving risk management. Here are details of the mentioned factors.

Reducing customer friction

Automated payments play a role in minimizing the burden of manually remembering and initiating each payment. This, in turn, creates a smooth user experience. This convenience factor is important when customers have multiple BNPL purchases with different payment schedules running simultaneously. Thus, automated systems align with the core BNPL promise of making purchases easier and more manageable.

Ensuring consistent payment collection

Automation renders predictable cash flow by systematically collecting payments on predetermined dates without relying on customer action or memory. This consistency is helpful for BNPL providers to maintain their own financial obligations, meet revenue projections, and render accurate financial reporting to stakeholders.

The reliability of automated collection enables better business planning and operational forecasting to meet priority business goals.

Minimizing costs

Manual payment processing requires a human role for payment handling, transaction reconciliation, customer service interactions, and follow-up activities. Automation reduces these operational expenses and enables BNPL companies to scale efficiently without increasing administrative staff.

Improving risk management

Automated systems improve risk management by systematically attempting collection at optimal times, automatically retrying failed payments using predetermined schedules, and immediately flagging problematic accounts for attention.

This systematic approach helps maintain lower default rates compared to manual processes, while enabling real-time response to payment failures through alternative payment methods or immediate customer notifications, preventing minor issues from escalating into major collection problems.

How does SubscriptionFlow facilitate businesses operating on buy now, pay later models?

Although SubscriptionFlow does not originate Buy Now Pay Later (BNPL) plans by default, however, it can integrate with leading BNPL providers including Klarna, PayPal Pay Later and Afterpay, thereby allowing businesses to render flexible installment options at checkout.

Pay Later with Klarna

SubscriptionFlow connects with payment gateways such as Stripe, Adyen and more, allowing merchants to present Klarna’s BNPL options such as Pay in 4, Pay in 30 days or custom financing seamlessly within subscription flows.

When customers choose Klarna, the subscription management platform, manages their subscription activation and recurring billing. Whereas, Klarna pays the merchant upfront and collects installments directly from customers.

Flexibility for Recurring and Physical Products

SubscriptionFlow renders support for “Bill Me Later” use cases such as magazines or physical subscription services where customers split monthly or annual fees into smaller payments without having to lose immediate access to content or goods. The platform enables BNPL options at both sign-up and renewal, allowing customers consistent installment flexibility for memberships or subscriptions.

Multi-Provider Checkout

Other than Klarna, SubscriptionFlow enables mercahnats to integrate PayPal Pay Later and Afterpay via supported payment gateways. Merchants receive full payment upfront from BNPL provider, SubscriptionFlow oversees the recurring billing flow whereas BNPL provide handles installment collection.

Full Lifecycle Billing and Analytics

SF treats BNPL subscriptions as recurring plans, tracking billing cycles, automating invoices, managing renewals, proration, retries, and dunning workflows, ensuring uninterrupted service delivery.

SubscriptionFlow provides flexibility to customers at checkout so that they can even switch between BNPL and other payment ecosystems. This command over opting for the suitable payment plan makes SubscriptionFlow a reliable option for various types of payments.