Purchase on account is still one of the most popular payment methods in Germany. This is no surprise, after all, purchase on account is the safest way for customers to shop online. No credit card or bank details have to be entered and no sensitive data is transmitted. In addition, the customer has time to test the ordered goods without having to pay for them in advance. However, this involves a risk for the retailer. After all, the customer’s creditworthiness is unknown. This makes this payment method the one with the highest risk of default. But merchants can protect themselves against this risk. In this article, we will take a closer look at how and what payment on account means for the subscription economy.
How does the purchase on account work?
The functionality of purchase on account is as simple as it sounds. In concrete terms, this means that the customer orders goods online and, instead of entering bank details, receives an invoice – either digitally or by physical shipment of goods. The company’s payment deadline then determines the period in which the customer has to settle the value of the goods. But more and more payment service providers, including Klarna or even PayPal, now offer services that take over the collection of the invoice amount.
What are the advantages of buying on account?
For the custumer there are three major advantages to buying on account:
- The customer does not have to enter any sensitive credit card or bank data and remains anonymous as far as possible.
- The customer does not have to pay in advance, nothing is debited to him yet
- When ordering physical products, the customer can test them at his leisure and in case of return, he does not have to wait for the return transfer.
One advantage is another disadvantage? It is true that purchasing on account means a higher risk of default for online retailers under regular circumstances. But there are also two very clear advantages:
- Since purchase on account is still one of the most popular payment methods, the merchant will inevitably increase his sales massively if he offers purchase on account on his website. If he does not do this, there is a risk that many customers will jump ship and choose a provider with whom he can pay on account.
- At first glance, purchasing on account means more payment defaults and thus increased costs for collecting invoice amounts due. However, this is remedied by payment services such as PayPal or Klarna. With its “Pay later” option, for example, Klarna offers the attractive purchase on account for the customer, while at the same time assuming all risks. This means that the merchant always receives his revenue immediately.
What does purchase on account mean for the Subscription Economy?
Subscriptions are becoming increasingly important in the digital age. For example, the market research company Gartner expects that by 2020 more than 80% of software vendors will switch to subscription-based business models. However, this can tie up resources and thus incur costs if you don’t work with the right tools and partners.
Smart, dynamic, and flexible work processes are therefore indispensable in the subscription economy, starting with order execution and ending with invoicing. Especially with the usually very high number of monthly subscription invoices, payment defaults can quickly cost the retailer liquidity and thus its existence.
However, this does not have to be the case. Many payment service providers offer their customers the option of paying their bill using a wide variety of payment methods, including paying the bill by credit card. PayPal PLUS is perhaps one of the best-known offers here. Here, even a payment without a PayPal account is possible.
Conclusion: Purchase on account is a must!
Companies that not only want to attract digital natives and people who are open to payment methods such as credit cards or PayPal as customers cannot avoid invoice purchasing. According to an “ibi research” study by the University of Regensburg, the number of purchase cancellations can be reduced by 80 percent if payment on account is not offered on the website. With more and more payment service providers on the market who assume the risk of default, there is no longer any reason not to offer this important payment method.