Pay now or later? When to buy goods and services on credit

You’ve reached the checkout for your purchase, and now it’s time to choose how to pay. In the past, you’d have been restricted to paying on the spot using your debit or credit card, but nowadays, there are more flexible options – allowing you to delay payment to a time that better suits your business.

Table of contents

• Paying in full at the checkout
• Buy Now Pay Later
• Pay once you receive the goods or services
• Wrapping up

Paying in full at the checkout

You might choose to pay for your goods or services in full, using funds on a business debit or credit card. The benefits include:

• Wide acceptance: Pay online or in-store in many places across the UK and abroad. You might also get better exchange rates when using a credit card
• Buyer protection: If the item or service you purchase is faulty or doesn’t arrive, you may be able to get your money back depending on how you paid
  • If you paid between £100 and £30,000 for goods or services using your credit card, you could make a claim under Section 75 of the Consumer Credit Act
  • If you paid for something costing more than £100 using your debit card, you could use chargeback to get a refund
• Rewards: Some account providers offer cashback, air miles and other rewards for spending

However, you are restricted by a spending limit for both options:

• With a debit card, you can spend up to the amount in your account. You may incur charges if you surpass this and go into an overdraft
• With a credit card, you can spend up to your credit limit as set by your lender. If you don’t pay your credit card off in full each month, you’ll be charged interest – this means you’ll end up paying back more than the amount you originally used

🤔 What does this mean for your business credit score? Using your debit card usually doesn’t affect your credit score, unless you use an overdraft. However, missed or late payments on your credit card could lead to extra fees and a hit to your business credit score. Before using it, consider whether you can afford the repayments alongside your other outgoings.

Buy Now Pay Later

Buy Now Pay Later (BNPL) has become a popular payment option for many over the past few years: over 17 million customers have used it in the UK¹.

With BNPL, you can either split the cost of a purchase into smaller instalments or postpone the payment date. The BNPL provider you choose will pay the merchant in full for you when you make the purchase. Then, you’ll repay the provider for the balance of your purchase. BNPL can offer:

• A way to spread the cost of purchases over time. This can be useful if you’re making expensive purchases
• Credit without interest or fees. Most BNPL providers don’t charge you to use their services (apart from late repayment fees). They make money by charging the merchant a percentage of the purchase price
• In-store and online use. Choose it as a payment method when paying online, or show the merchant your BNPL payment link or QR code when you pay in-store
• Lower risk of a hard credit check. Most providers run a soft credit check when you’re buying something using BNPL. This won’t affect your credit score, unlike a hard credit check, but it’s important to check whether this is the case with your BNPL provider
• Approval with a low credit score. For some BNPL providers, you won’t need to have a minimum credit score to use their services
• Growth for your credit score. When you make repayments in full and on time, it can show lenders that you’re a trustworthy borrower

However, BNPL has some restrictions and negative effects if you don’t use it wisely.

• It’s not accepted everywhere. There’s no obligation for a merchant to accept BNPL. If they do choose to, they have to sign up with one or more providers. They may choose to work exclusively with one BNPL provider, which may not be the provider of your choice
• You may incur high fees. If you make a late payment, you might have to pay extra fees. Your account may also be sent to debt collection if you miss payments
• Missed or late repayments could hurt your credit score. This could affect your chances of being approved for credit in the future
• It’s not covered by Section 75 of the Consumer Credit Act. Unlike credit card purchases, you can’t use Section 75 to claim a refund for purchases that are faulty or don’t arrive when you use BNPL. Check the protection your BNPL provider offers

⚠️ Whilst BNPL can be convenient to use, especially for larger purchases, consider whether you can afford the repayments alongside your other outgoings.

Cover with Credit Line

At Tide, we’ve developed a solution to help prevent the negative effects you’re at risk of when paying in instalments.

Whether you use your Tide card, a wire or Direct Debit, Cover with Credit Line allows you to split the cost of any past transaction into 6 monthly instalments.

Because you’ll have paid for your goods or services using a Tide payment method, you’ll benefit from being able to pay in-store or online in the UK and abroad, and you’ll still be protected through Section 75 of the Consumer Credit Act. Paying your Cover with Credit Line instalments back on time and in full will help your business credit score grow, too.

If you’re eligible, tap More > Cashflow Insights > Solutions > Credit Line in your Tide app to view your pre-approved offer.

Pay once you receive the goods or services

Trade credit is an option that many small business owners are familiar with. It allows you to delay paying an invoice for a certain period of time – this is usually 30, 60 or 90 days. If you use trade credit, you’ll be given net terms which tell you how long you have to pay the invoice.

• You can still make purchases if you’re short on cash. So, your business doesn’t have to get put on hold whilst you wait for accounts receivable to come in
• They take into account the time the goods or service takes to arrive. That means it’s likely you won’t pay for your purchase until you’ve actually recieved it
• You may get a discount if you repay early. Some merchants will encourage you to pay your invoice before your net payments terms are up by giving you money off

Like other credit options, there are some risks with using trade credit. 

• You might incur interest. Some suppliers or vendors will charge you interest if you pay late
• Missed and late payments can damage supplier relationships. Paying your supplier or vendor late could affect their cash flow and make them less likely to offer you credit in the future
• You might be taken to debt collection. If you don’t pay, your account may be referred to a debt collection agency to recover the money you owe, plus other fees. It may also leave a mark on your credit report

Wrapping up

The payment options available on the market give you more flexibility when it comes to buying things for your business. You can pick an option that allows you to pay when the money needed comes into your business.

Whether you choose to pay immediately via credit card, in instalments or after you receive your purchase, consider whether you’re able to afford the repayments and any associated fees.

¹BBC News, 29 Nov 2021: https://www.bbc.co.uk/news/business-59433904