BNPL for B2B: New Zip Business product offers up to $150,000 credit for SMEs

Zip Co — one of Australia’s original buy-now, pay-later (BNPL) players — is making a play in business-to-business payments, with a new service allowing SMEs to pay off all kinds of expenses in installments.

The provider has added to its initial trade solution, which allows business owners to use BNPL for checkout payments of up to $3,000.

Zip Business Trade Plus will now offer a whole new line of credit between $3,000 and $150,000, which is interest free for 60 days.

That credit can be used anywhere Zip is accepted, including online, in stores, or even to pay bills and invoices.

It’s designed to allow small businesses quicker and easier access to capital, without having to go through traditional banking channels. The service promises approvals in less than 24 hours, but Zip Business general manager Geof Alexander says they will typically come through in about 30 minutes.

Once a business is approved it can access capital up to the $150,000.

Cashflow is the “number one pain point” for small businesses, Alexander tells SmartCompany.

“But it’s also the ability to get that cash flow when you need it, and to be able to simply reconcile and track it in one place.”

Small businesses generally don’t have the time to consider what capital they might need in a few months’ time and start an application process in advance, he notes.

They tend to have more of a consumer mindset. When they need a product, they need it right away.

Accordingly, the fee structure follows the same philosophy as that of the retail product.

Payments are interest-free for 60 days, or the business can pay in four equal monthly installments for a 3% fee.

Late payments incur a $25 flat fee, and any customer with an account in arrears won’t be able to access more credit.

The idea is not to make big revenues from late fees, Alexander says. Zip wants customers to continue to engage, and to use the product again.

Lending responsibly?

While BNPL products have surged in popularity over the past 12 months, there have been criticisms levelled at the industry, which is currently self-regulated, for the most part.

A report from ASIC in November last year found that some consumers were suffering financial stress — even skipping meals or paying household bills late — in order to make their BNPL repayments.

Some 20% of people surveyed said they had cut back or gone without essentials to make payments on time. Of those, 50% were aged between 18 and 29, and 50% had already missed payments in the past.

Critics say some BNPL services simply offer an expensive line of credit, without taking the consumers’ best interests into account.

So, at a time when small businesses are especially vulnerable, should small businesses be encouraged to get into more debt? If repayed after the 60-day interest-free window, the annualised cost of the debt is not exactly cheap.

But Alexander doesn’t see it this way.

He stresses that Zip is taking “a responsible underwriting perspective” to ensure customers do have the ability to make their repayments.

Alexander says this product isn’t designed to get small businesses in crisis out of a hole. Rather, it’s designed to help them pay for something that will boost their revenue in the longer term.

“They think about it slightly differently to a consumer.”

Small business owners are more likely to look for cash to pay a bill, purchase a new tool or buy some Facebook ads, for example, because it will help them grow.

“We actually see a positive return.”

Ultimately, the BNPL sector is evolving, and Alexander believes a shift into the B2B space is the natural next step.

Where retail consumers have well and truly made the shift online, B2B consumers are following. Typically, B2B shifts happen five to seven years after the same shift in retail, he suggests.

“We’re just at the nascent industry stage … this is just the start.”