BNPL Finds A Niche In Small Business Hiring

Buy now, pay later (BNPL) has exploded in recent years amid surging eCommerce volumes and a desire among shoppers to manage their personal cash flow.

In the B2B arena, meanwhile, corporate buyers are still most often required to settle their invoices in a single lump sum, instead turning to payment terms or trade finance to ease the cash flow burden.

For the smallest of business customers, however, the financial pressure of a large bill cannot be alleviated through delaying payment. In certain industries, this financial pressure can actually prevent a business from making purchases they need to grow and thrive.

Such is the case in the talent recruitment industry. U.K.-based Playter Pay Founder Jamie Beaumont said, coming from the recruitment space himself, he saw a need among the smallest of businesses eager to grow and expand but unable to pay for third-party hiring services without taking a significant hit on the balance sheet.

“More than anything, last year and the beginning of this year, we see businesses wanting to grow,” he told PYMNTS in an interview. “But the value of an upfront, large, one-off cost puts [small- to medium-sized businesses (SMBs)] in a really compromising position.”

BNPL Finds A Niche

This was the driver for Beaumont to launch Playter Pay, which operates in what it describes as the “Hire Now, Pay Later” space. Initiated by the recruitment service provider, the solution allows businesses to invite their SMB customers onto a platform to upload an invoice, submit payment details, and then stretch their payments in installments over six months. Meanwhile, the recruitment gets paid within 24 hours.

It’s a financing product that might be compared to more traditional resolutions deployed by the B2B community. For instance, a vendor may sell on trade credit, or either the buyer or supplier might initiate some form of trade or invoice financing solution. Yet Beaumont noted there are clear differences, with trade finance rarely able to address the SMB segment.

In addition to a more “lethargic” process of applying for a bank loan, it can often be challenging for young startups to qualify for bank or other types of financing due to a lack of financial history.

Alternatively, Playter Pay uses open banking and technology to assess the creditworthiness of an SMB interested in the offering.

Industry-Specific Benefits

There are clear-cut impacts that this model can have on an SMB’s cash flow.

Most obvious is the ability for installment plans to alleviate cash flow burdens, which also benefits the recruiting agency that no longer faces the risk of non- or delayed payment. Beaumont also explained that this strategy can actually allow an SMB to increase its own hiring budget based on internal cash flow needs.

“If I’m a business and I have £30,000 pounds to spend in the first quarter and £30,000 to spend in the second quarter, then I can actually spend £60,000,” he noted. “Therefore, I can grow quicker and more efficiently, and get an ROI quicker knowing the cost is spread over two quarters.”

But there are other, industry-specific benefits to the BNPL model, as Beaumont said.

In the recruitment arena, there are often policies in place that allow an SMB unhappy with the talent selected for their company to get their money back within a certain period of time if that professional leaves or is fired.

Using Playter Pay, businesses have 24 weeks, as opposed to the traditional 12 weeks, to assess the ROI of the recruiting service. Further, when payments are spread out and the cash flow burden is alleviated, employers may be under less pressure to seek a refund if a new hire does not immediately work out in their favor.

“This gives individuals a better opportunity to imbed themselves into a business and provide ROI, rather than businesses making a knee-jerk reaction over a three-month period, firing a person to get a refund,” he said.

Market Evolution

The hiring landscape is quickly evolving thanks to the rise of the gig economy and the greater need for on-demand workers, temporary talent or contractors. This hiring strategy can further support stronger cash flows, and, according to Beaumont, is likely to increase demand for BNPL in the recruitment arena as employers embrace a hybrid model of professionals for their staff.

The BNPL model is a win-win in theory, but in practice, it has introduced some new challenges as it proliferates in the B2C space. Among its biggest threats stems from criticism that consumer-facing BNPL solutions can lack transparency with shoppers that may not understand that they are effectively obtaining a loan when deploying this solution. There may be hidden fees and costs, and in the U.K., regulators are taking note.

The Financial Conduct Authority has expressed interest in regulating the BNPL space following a four-month review of the industry, it announced earlier this month, with an emphasis on consumer protection.

Beaumont said that there is ample opportunity for BNPL in the B2B sector, but he noted it is critical for businesses to understand how the product works. So, while technology can be a valuable asset in underwriting potential SMB customers, it’s also important to act “transparently and ethically,” he noted, adding that the company will eventually explore the potential for this model in other sectors, too.

But for now, the recruitment industry continues to be greenfield for this offering.

“We’ll see that, over and over, the gig economy will have an impact, and new alternative ways of recruiting and payment will appear,” said Beaumont.