Managing the Risks of Buy Now, Pay Later Services for Small Businesses: What You Need to Know

Small businesses looking for ways to attract more customers may want to consider offering “buy now, pay later” services. These services allow consumers to spread out payments for goods over several weeks or months, often with no or low-interest rates. However, small businesses need to be aware of the risks involved in offering these services, especially if they are offered by third-party companies like Affirm and Klarna.

One benefit of buy now, pay later programs is that they often offer consumers the option to select payment plans with no interest, such as the one offered by Chase. However, if something goes wrong with the payment plan, consumers might blame the small business even if they are not directly involved in the plan. Reports from the Consumer Financial Protection Bureau (CFPB) have shown that disputes and returns are common with these programs, costing small businesses money in fees that can add up over time.

To ease the minds of small business owners, the CFPB issued a new rule in May that requires buy now, pay later companies to provide consumers with the same legal rights and protections as credit card lenders. This means that consumers have the right to dispute charges, easily get refunds for returned items, receive billing statements, and other protections. Lenders are also required to investigate disputes, pause payment requirements during investigations, credit refunds to shoppers’ accounts