Revenue-Based Financing vs B2B BNPL


The majority (57%) of small and medium-sized enterprises (SMEs) struggle with cash flow issues, which can make essential payments like salaries, taxes and monthly overheads unnecessarily stressful. In this blog series, we’re exploring the different financing options available to businesses and pitting them against B2B Buy Now, Pay Later (BNPL).

Revenue-based financing (RBF) is a flexible approach to financing, enabling businesses to pay back the loan as a percentage of their revenue, rather than a fixed monthly amount. It’s a popular type of financing for small and steadily growing businesses.

Meanwhile, B2B Buy Now, Pay Later (BNPL) has emerged as a viable alternative form of financing for sellers looking to ease cash flow issues while also offering better payment terms to customers. This type of finance is like having your cake and eating it. You get paid upfront and in full by a lender, while your buyers get 30, 60 or 90 days to pay.

Please be aware that while this guide is intended to be helpful, it is not financial advice. 

B2B BNPL vs revenue-based financing: an overview

The table below shows an overview of how B2B Buy Now, Pay Later stacks up against RBF.

Are you looking to... Revenue-based financing B2B BNPL
Get invoices paid faster?
Improve day-to-day cash flow?
Grow your business with more capital?
Offer more choice to buyers?
Draw down financing as needed?
Grow your customer base without taking on risk?

Let’s dive in and learn more about revenue-based financing and B2B Buy Now, Pay Later.

What is revenue-based financing?

Revenue-based financing is a more flexible approach to taking out a loan. An investor or lender will inject an agreed sum of cash into a small or growing business, but rather than repaying the same amount of money each month as they would with a traditional bank loan, the business repays a percentage of their revenue.

For example, a business may commit to between 5 and 30% of its future sales each month until the loan is repaid. Usually, the total repayment is 3-5 times the value of the original investment. 

During busy periods like Christmas or Black Friday sales, this could mean a large repayment, while during quiet moments like seasonal downturns, or the second week of January, it means the business won’t struggle with unreasonably large repayments. 

Sometimes, the lender will be a company that facilitates online checkout payments, such as ClearCo, CapChase or Pipe. 

Revenue-based financing is also sometimes known as:

  • Royalty-based financing
  • Sales-based financing 

What are the advantages of revenue-based financing? 

1. Flexible repayments

Unlike a traditional loan with fixed monthly payments, RBF payments are tied to a percentage of the business's revenue. During periods of low revenue, the payments are lower, reducing financial strain on the business.

2. No equity dilution

One of the most significant advantages of revenue-based financing is that it allows founders to raise capital without giving up ownership or equity in their business.

3. No fixed deadline

With repayment linked to revenue, there is no pressure to pay back the investment within a specific timeframe. This can be beneficial if your business experiences slower growth or unexpected challenges.

4. Quicker and easier than traditional equity financing

Compared to traditional equity financing, revenue based financing can offer a faster injection of capital as the due diligence process is often less complex with little requirement in the way of paperwork.

5. No guarantees or collateral

This type of financing is typically based on your business performance so doesn’t require personal guarantees or collateral. This reduces the personal financial risk associated with traditional financing.

6. Automatic deductions

The repayments are often automatically deducted by your payment provider, which will be an added layer of convenience for most merchants. 

What are the disadvantages of revenue-based financing? 

1. Smaller loan size

The amount of money you can borrow is usually smaller than other types of finance – around a third of the company’s overall revenue.

2. Monthly payments over an extended period

This long-term commitment could limit your business's flexibility in pursuing other financing options or adjusting its financial structure.

3. Higher effective cost

While revenue-based financing is not a traditional loan, the ongoing percentage of revenue paid to investors can result in a higher effective cost of capital compared to other financing options, especially if your business experiences strong growth. 

4. Cash flow constraints

Repayments can impact your business's cash flow, particularly during periods of slower revenue growth. The fixed percentage payment could put strain on your ability to cover operational expenses and invest in growth initiatives, which may well be why you sought financing in the first place.

What type of business could benefit from revenue-based financing?

Revenue-based financing is suited to some businesses more than it is to others. If your business matches any of the descriptions below, you may benefit from RBF:

  • Businesses with revenue that’s easy for lenders to forecast, for example e-commerce sites.
  • Firms that generate regular ongoing revenue, like SaaS (software as a service) or subscription services.
  • Seasonal businesses that may have fluctuating but predictable sales, such as hospitality or holiday products.

What type of business is not a good match?

Conversely, some types of businesses are not well suited to RBF:

  • Seed and early-stage companies without any revenue yet – if you have no revenue, you can’t commit to monthly repayments.
  • Businesses that do not have a history of revenue or cannot show reliable forecasting.
  • Businesses that require substantial upfront capital, such as heavy manufacturing or infrastructure projects, might find RBF insufficient to cover these costs.
  • Business expecting high growth or a significant valuation increase.

What is B2B BNPL? 

At this point, many people will have used or heard of BNPL as consumers. Providers such as Klarna, ClearPay and even Apple have become commonplace at the checkout, enabling customers to defer payment by 30 days or spread the cost of a large purchase over three monthly instalments. Meanwhile, the merchant gets paid upfront and in full by the lender.

But BNPL is not really a new concept. Kitchen appliance and furniture shops have offered similar services, albeit offline, for years. Meanwhile, trade credit has enabled businesses to transact in this way for decades.

What is new, however, is the technology behind BNPL. It’s part of a wider trend called “embedded finance”, and it has been ground-breaking for marketplaces and merchants selling online. 

Now, BNPL is beginning to enter the business world. At the click a button, buyers can access payment terms while suppliers are paid upfront. This is similar to invoice factoring, but much faster. 

What are the advantages of B2B BNPL? 

1. You get paid upfront and in full

The BNPL provider will pay you upfront and in full, significantly improving your cash flow and enabling you to direct resources to your business goals.

2. You’re guaranteed to keep the full payment

With solutions like Hokodo’s, suppliers keep the full payment even if the lender cannot collect from the buyer. 

3. Buyers benefit from generous payment terms

BNPL solutions don’t just benefit you – your buyers get the chance to defer payment by 30, 60 or 90 days.

4. It saves time and resources

B2B Buy Now, Pay Later brings the entire trade credit management process under one solution, meaning that you can save the time and resources associated with fraud checks, credit scoring, financing, insurance, payment processing and collections.

5. It can be integrated into your checkout

E-commerce plug-ins and API integrations offered by B2B BNPL providers benefit your business and report-keeping. Buyers get a smooth checkout experience and you start reaping the benefits of BNPL within days or weeks.

6. The B2B BNPL provider takes responsibility for risk

Sellers are fully protected against credit and fraud risks.

7. No need to put up collateral

For some forms of financing, businesses are required to put up some form of collateral or security. Like revenue-based financing, this is not necessary with B2B BNPL.

What are the disadvantages of B2B BNPL? 

1. Some sellers may not have an online checkout

You may not have an online platform, or your buyers may prefer to pay via traditional invoices. With some providers this may be a challenge, but not Hokodo – our solutions can be integrated into offline sales journeys.

2. Your buyers will deal directly with a third party lender

When you partner with a B2B BNPL provider, they will be responsible for collecting payment and contacting your buyers. If handled poorly, this has the potential to impact your commercial relationships. 

3. The fees

Like with some other forms of financing, there is a fee. The fee model will vary from supplier to supplier. With Hokodo, you pay a small % of the value of each order that is paid for with BNPL.

What type of business could benefit from B2B BNPL?

B2B BNPL can benefit a variety of business types including:

  • E-commerce sites, marketplaces or other platforms where goods are sold online. 
  • Business with online and offline sales that want to harmonise payments across all channels.
  • Businesses that want to offer trade credit in an online setting.
  • Businesses which need invoices paid quickly for cash flow but want to offer flexible payment terms to buyers.

Manchester-based wholesaler Shonn Brothers is just one of the businesses that has realised the benefits of a B2B BNPL solution. 

“Hokodo has provided an innovative and revolutionary experience for our wholesale and trade customers giving them the opportunity to Buy Now, Pay Later,” explains Daniel Shonn, Director of Shonn Brothers. “It is an interesting proposition with great sales potential.”

What type of business is not a good match?

In a small number of scenarios, B2B BNPL might not be the right fit. These include:

  • When businesses do not have an online platform and don’t want to embrace a digital solution for offline transactions.
  • When businesses offer bespoke services that require manual invoices.

Revenue-based financing vs B2B BNPL: which is right for you?

If you are a B2B supplier with an online or offline platform, BNPL could be a great option, both for you and your buyers. It gives buyers the chance to pay in a way that preserves their cash flow, while you receive funds upfront and are protected against risk. Always check that you’re happy with the lender as they will be dealing directly with your clients when it comes to collecting payment. 

If you find that your income fluctuates in a predictable way depending on the time of the year, revenue-based financing might be a good match. If you are a small, steadily growing business making regular online sales, it’s probably better suited for you.

Download our ultimate guide to learn more about your options when it comes to B2B financing.

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