What is Buy Now Pay Later and should my business offer it?

Buy now pay later allows customers to pay for goods or services in instalments over a period of time, or simply pay in full at a later date.

Allowing customers to make purchases from your ecommerce store through buy now pay later methods can help increase conversions and boost average order value, but there are things you need to consider.

In this article, we’ll discuss:

  • What buy now pay later means
  • What buy now pay later is used for
  • Buy now pay later examples
  • Buy now pay later providers
  • How buy now pay later agreements work

What does buy now pay later mean?

Buy now pay later actually has several meanings, although there are two that are most commonly used in accounting.

One situation where the term buy now pay later is regularly used is when a customer makes a purchase but defers full payment to a later date.

Another way buy now pay later is used in business is for paying for an invoice or debts in instalments until the full amount has been paid back.

Both scenarios have been made more popular by the rise in the number buy now pay later providers, which can bring many benefits for ecommerce businesses.

What’s buy now pay later used for?


In retail, buy now pay later is used by customers who prefer to spread payments over a period of time or defer payment to a later date.

Electrical goods, clothing, and even cosmetics are now regularly purchased using BNPL options or through monthly/weekly instalments. 

In recent years, buy now pay later has boomed, driven by consumer appetite to move away from credit cards and because of the greater flexibility it offers. In certain ecommerce verticals, it's essential to offer buy now pay later options to remain competitive and increase conversions. 


Buy now pay later agreements exist in the business world as “payment on account”.

It’s common practice for businesses to open “accounts” with suppliers and companies they regularly do business with. This allows them to make regular payments, meaning they can predict and manage their cash flow accordingly.

It also allows for a single invoice to be produced listing all goods and services purchased “on account” over a set time period, which makes life easier for both the business and supplier.

Examples of buy now pay later

Buy now pay later purchaeses are split into two categories. One is deferring a payment and paying it in full at a later date, and the other is spreading the cost over several instalments which is paid over a set time period. Both are commonly used buy now pay later options in online retail.

Buy now pay later providers

While there are many different buy now pay later payment providers for ecommerce businesses, some of the most popular are Klarna, Clearpay, Laybuy and Ratepay.


Klarna is one of the most well-known purchase-on-account payment providers in Europe. Customers are able to use Klarna at checkout to pay in three instalments (known as Klarna: Pay in 3) or defer payments for 30 days (known as Klarna: Pay Later).

Klarna users do not have to pay any interest on deferred payments. Businesses receive their payments as lump sums in the timeframe outlined in the contract they have agreed with Klarna.


Clearpay is the UK’s largest buy now pay later marketplace, and is slightly different to Klarna in that payments are made over four instalments over a six-week period. Payments are interest free, provided that they are made on time.

The website and app also provide users with the opportunity to earn points when they make payments on time, which can be exchanged for rewards such as exclusive discounts, early access to sales, and the ability to delay payments by up to seven days.


Laybuy splits payments into even smaller chunks, with customers able to pay just 1/6th of the total cost up front and the rest over five weekly instalments. Customers are limited on how much they can spend, but they are able to “boost” this by paying the difference upfront, allowing for larger purchases.

Like Klarna and Clearpay, buy now pay later agreements with Laybuy are interest-free when customers pay on time. The brand also provides users with a “card” that can be stored in the Apple Wallet and used for in-store purchases as well as online. 


Ratepay is a white-label buy now pay later provider operating in the DACH market, meaning that businesses can offer this service using Ratepay’s systems and processes.

Aside from the general benefits we’ve already discussed for this type of purchase, Ratepay is advantageous in that they help businesses offer a more seamless brand experience than they could if using other third-party providers.

When do businesses get paid?

How and when purchases are made using buy now pay later services affect accounting processes will depend on the provider and the contract businesses have in place with them. Typically, however, the process will be reasonably straightforward. 

When a customer makes a purchase on an ecommerce website, choosing a third-party buy now pay later payment method, from that point onwards, the customer only makes payments to the third party. 

Businesses will be paid in full upfront, less any transaction and service fees outlined in their contracts. The payments are made to your company account almost as if they were a regular credit card transaction, with the buy now pay later provider taking the credit and fraud risks.

Actual payment terms vary by provider. Some, like Clearpay, have set timeframes. They process settlement payments within 1-5 business days of the order date, with banks usually taking another day or two to deposit the settlement into company accounts.

Klarna also has a set period for what they call payout delays, which is typically one week plus one day after the order has been shipped. For example, orders placed and shipped from your website using Klarna on Monday will be paid out on Tuesday of the following week.

Grow your business with buy now pay later and Mollie

When making the decision to offer buy now, pay later payment methods on your ecommerce site, it’s important that the rest of your checkout process is as seamless as your customers expect. That’s where the team here at Mollie comes in.
With Mollie and Klarna joining forces, it’s easy to add Klarna: Pay Later and other buy now, pay later options to your website.

Get better payments now.