Business BNPL vs Trade Credit: What's the Difference?
Trade credit is you lending to your own customer: you deliver the goods, they pay you in 30 days, and you carry the risk and the chasing. Business BNPL puts a third party in the middle, who pays you now and collects the instalments from your customer. The buyer still gets time to pay. You don't fund it.
Business BNPL vs Trade Credit at a Glance
Both give your customer time to pay. The difference is who provides the money in the meantime, and who is left holding the loss if the customer never pays. If you are new to the underlying concept, start with what trade credit is.
| What changes | Trade credit (your own account) | Business BNPL (third party) |
|---|---|---|
| Who pays you | Your customer, on their terms | The provider, shortly after the sale |
| When you're paid | Day 30, 60, or whenever they get round to it | Usually within a day or two of approval |
| Who funds the gap | You do, out of working capital | The provider does |
| Who carries the bad debt | You | The provider, on the terms of their agreement with you |
| Who chases payment | You or your credit controller | The provider |
| What the buyer signs | A credit application, often with a personal guarantee | An agreement with the provider for that purchase |
| Cost to you | No fee, but your cash is tied up and some of it is never collected | A merchant fee on the sale |
| Cost to the buyer | Usually nothing if they pay on time | A fee for the instalment term they choose |
| Effect on your debtor days | Pushes them up | Takes the invoice out of your ledger |
A note on wording. This article compares BNPL with trade credit, meaning the practice of selling on account. If you are comparing a formal trade account facility with instalments, the sibling article trade accounts vs business instalments covers that specific pairing.
How Approval Differs
When you extend trade credit, you are the credit department. You take an application, run a business credit check, call trade references, set a limit, and often ask a director to sign a personal guarantee. That process takes days and it is work you do for every new account.
With BNPL, the provider makes that decision instead, for the specific purchase in front of them rather than for a standing limit. The practical effect for a supplier is that a buyer who would fail your credit policy, or who simply doesn't want to open an account for one order, can still buy today.
The trade off is control. You set your own credit policy; you do not set the provider's. A purchase can be declined by them even when you would have been happy to supply it.
How the Risk Moves
This is the part that actually matters to a supplier's balance sheet. Under trade credit, an unpaid invoice is your problem: your loss, your debt collection cost, and your time. The hidden cost of offering trade credit is mostly this, plus the working capital sitting in your debtors ledger.
Illustrative example. A Hamilton packaging wholesaler turns over $2.4 million a year on 30 day terms, with debtor days at 47. That is roughly $309,000 of cash tied up in unpaid invoices at any moment. Write off 1% of revenue as bad debt and that is another $24,000 a year gone. Neither number appears as a line item anywhere, which is why trade credit feels free.
Under BNPL, the provider pays you and then owns the collection problem. You pay a merchant fee for that, which is a visible cost replacing two invisible ones. Whether the swap is worth it depends on your margin, your current debtor days and how much bad debt you actually write off. Work out your own figure first using debtor days.
Which One Fits Your Business
- Trade credit suits you when you have a stable base of long standing customers who pay reliably, enough working capital to fund the gap comfortably, and someone whose job is credit control. The cost really is close to zero when all three are true.
- BNPL suits you when you are growing faster than your cash allows, when order values are large enough that buyers ask for terms you can't fund, when you are selling to new customers you can't easily credit check, or when your debtor days are climbing and you would rather not become a lender. See offering payment terms without becoming the lender.
- Many suppliers run both. Keep accounts for the regulars who have earned them, and offer instalments at the point of sale for everyone else, including one off and larger orders.
Where PaidTerms Fits
PaidTerms is the second column. Your customer chooses to pay in 3, 6 or 9 monthly instalments, PaidTerms pays you in full within 12 hours, and PaidTerms collects the instalments. The merchant fee is 1.5%, and the customer pays the instalment fee for the term they pick, from 3.95%. See pricing for the full rate card.
To be clear about the boundary: it funds a specific sale. It is not a line of credit for your business, and it does not replace a credit policy for the accounts you already run well. Read more in the B2B BNPL guide, the Trade Credit guide, and whether instalment financing is the same as BNPL. If you are weighing BNPL against invoice finance instead, see trade credit vs invoice finance.
Frequently Asked Questions
What is the difference between business BNPL and trade credit?
With trade credit you fund the delay yourself: you deliver, wait for your customer to pay, and carry the loss if they never do. With business buy now, pay later a third party pays you shortly after the sale and collects the instalments from your customer, so the waiting and the bad debt sit with them instead of you.
Is business BNPL cheaper than offering trade credit?
It depends on what trade credit actually costs you. Trade credit has no fee, but it ties up working capital and some invoices are never collected. BNPL charges a visible merchant fee instead. Compare the fee against your own bad debt write offs and the cash locked in your debtors ledger before deciding.
Does my customer still get time to pay with BNPL?
Yes. That is the point of it. The buyer spreads the cost over fixed instalments, and the supplier is paid shortly after the sale rather than at the end of that period. The buyer pays a fee for the term they choose.
Can I offer both a trade account and instalments?
Yes, and plenty of NZ suppliers do. Accounts suit regular customers who have a payment history with you. Instalments suit new customers, one off buyers and orders too large to fund from your own working capital.
Is business BNPL the same as consumer BNPL?
No. Consumer services split a small purchase into a few fortnightly payments for a shopper. Business versions deal in invoices worth thousands, run over months rather than weeks, assess a company rather than an individual, and sit alongside trade accounts and purchase orders.
