Nearly half of the U.S. workforce is employed at one of 30 million small- to medium-sized businesses (SMBs) with 500 employees or fewer.
It is a turbulent market with high turnover, however, as half of SMBs only last five years — just one-third make it 10 before shutting down. Eighty-two percent of those that do not survive cite cash flow issues that make them fail to meet their sales goals.
Buy now, pay later (BNPL) solutions can encourage higher sales and give SMBs — especially those that sell premium items like specialty tools or apparel, which often have prices that might scare customers away — brighter futures. Massachusetts-based eTailer 1620 Workwear sells heavy-duty clothing for construction workers, carpenters, plumbers, EMTs and others who work outdoors or in demanding environments, and recently began deploying installment payment options from BNPL provider Afterpay.
“Everything’s gotten so much more challenging in [direct-to-consumer],” Josh Walker, 1620’s co-founder, explained in a recent interview with Fintech Zoom. “Even massive brands that sell hundreds of millions of dollars of this stuff can’t find their way to profitability. If you have [BNPL as] another tool in your arsenal that you can use to get that customer to convert, you’re crazy not to try it.”
BNPL solutions can help SMBs like 1620 compete with their larger counterparts with lower price points by reducing the upfront cost. They have even helped businesses during the coronavirus pandemic by allowing customers to finance vital purchases.
Reducing Sticker Shock
“Buy once, cry once” is a common adage in many fields, with industry professionals typically agreeing it is more economical in the long run to purchase high-end tools, equipment or gear that lasts for extended periods of time rather than being forced to constantly replace low-end, more affordable models. This is often easier said than done, however, as these items can be so prohibitively expensive that buying once is not an option.
BNPL services can soften this blow by allowing customers to spread out hefty initial investments over a series of smaller payments. These plans are nothing new in these industries, Walker said, meaning workers looking to upgrade their gear will not have to overcome unfamiliarity with BNPL systems that other industries sometimes face.
“Customers are pretty used to paying with payment plans,” said Walker. “[Hand and power tool manufacturer] Snap-on has had a payment plan since probably 1975. These guys are familiar with getting what they need to get their job done and paying for it over time because they need to be out there making a paycheck every week.”
BNPL options are also helping SMBs amid the COVID-19 pandemic and associated economic downturn, which have resulted in budgets being stretched and both businesses and individuals lacking funds with which to make purchases. Spreading expensive purchases out over several weeks will likely be essential if businesses like 1620 wish to remain in operation, Walker noted.
“[Customers are going to] have to finance everything they need,” he explained. “I think if you’re not using BNPL [due to] what people’s credits are going to look like or what financial institutions are going to look like, you’re [missing a significant opportunity].”
Business has so far remained strong, Walker added, as construction sites, fire departments and other organizations that require premium workwear have been deemed essential by state governments. BNPL payment options will remain useful after the pandemic, too, as users will be interested in making staggered, seamless payments well into the future.
Enabling Seamless Checkout
Making online checkout frictionless will be key for eCommerce in the years to come, Walker said. BNPL options will play a role, allowing customers to reduce their financial burdens with the click of a button rather than through tedious payment plans or layaway application processes.
“People want as little friction as possible, and on the merchant side, like us, we want our customers to have a seamless checkout process,” he explained. “The easier it is for us to make a sale, the more money we’re going to make.”
Encouraging SMBs to make use of BNPL options may be difficult, however. These firms often hesitate to forfeit portions of their sales totals to third-party providers because every dollar counts for those that do not make much in a given month.
“We were [initially] very reticent to give away any percentage because we’re from New England, and we squeeze quarters until the eagle screams,” Walker explained. “Getting someone to our site and getting them to add something to the cart — we’ve earned that [ourselves].”
Increased customer conversion rates finally convinced 1620’s leadership that enabling BNPL options was a good decision. The share of customers that purchase with the BNPL service has so far exceeded its provider’s percentage cut, making the partnership worthwhile.
“We [used to have] an insane amount of active carts in a single day, but when [customers] look at that cart, it’s not that cheap of a purchase,” Walker said. “The more ways for them to say ‘yes’ to entering that credit card information and clicking that buy button, the better it is for our business.”
SMBs will need every edge they can get to survive both the current economic downturn and similar challenges down the road. Further adoption of BNPL services could be a game-changing facet in helping more than just one-third of them see their 10th birthdays.