Alex is Sprintlaw’s co-founder and principal lawyer. Alex previously worked at a top-tier firm as a lawyer specialising in technology and media contracts, and founded a digital agency which he sold in 2015.
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Buy Now, Pay Later (BNPL) services like Afterpay are now common at Australian checkouts. If you run a store or an online business, you’ve likely been asked “Do you take Afterpay?” by customers who want more flexibility when paying.
BNPL can boost conversions and help some customers complete purchases. But it also introduces real costs and risks that are easy to overlook. Before you switch it on, it’s worth stepping back and asking: what are the disadvantages of Afterpay for Australian businesses, and how do you manage them?
In this guide, we’ll walk through how Afterpay works for merchants, the financial and operational downsides, the legal issues you should consider, and practical steps to protect your business if you decide to offer BNPL.
How Buy Now, Pay Later Works For Merchants In Australia
When a customer pays using Afterpay, they receive the goods immediately (or the order ships as normal). The customer then repays Afterpay in instalments according to Afterpay’s schedule.
As the merchant, you receive settlement from Afterpay (less the provider’s fees). Afterpay manages the customer’s ongoing repayments and any enforcement of missed instalments under its own terms with the customer.
To accept Afterpay, you’ll onboard as a merchant and integrate it with your online store or point-of-sale. The merchant agreement will set out how fees are charged, settlement timing, refund processes, and who is responsible for different risks. It’s important to review these terms carefully before going live.
A quick note on corporate context: Afterpay is part of Block, Inc. (the transaction was announced in 2021 and completed in 2022). As with any third‑party payment provider, ownership and policy changes can flow through to your fees, integrations and support arrangements over time.
The Real Costs: Fees, Margins And Refunds
The most obvious disadvantage for businesses is cost. Unlike customers (who generally pay no interest if they meet their instalments), merchants pay fees on every BNPL transaction.
Higher Merchant Fees Can Squeeze Margins
BNPL merchant fees typically include a percentage of the transaction plus a small fixed amount per sale. The exact figures depend on your agreement, industry and volumes. Compared to standard debit/credit processing, the percentage component is usually higher, which can quickly eat into already tight margins.
If you sell low‑margin or high‑volume products, build a realistic “blended” payment cost into your pricing so BNPL use doesn’t turn profitable orders into break‑even sales.
Refunds And Returns Are More Complex
Refunds for Afterpay orders are processed through the BNPL portal, not just your EFTPOS or gateway. That means additional steps for your team and longer timeframes for customers to see funds return, which can increase service workload and impact satisfaction if not communicated clearly.
Your agreement will explain how fees and settlements are adjusted for refunds or partial returns. Make sure your policy and staff training are aligned with that process so customers get consistent answers.
Late Fees Affect Your Brand Experience (Even If You Don’t Charge Them)
Afterpay manages missed instalments and may charge late fees to customers under its terms. While you don’t receive those fees, customers sometimes associate any negative repayment experience with the merchant brand. If a customer complains to you about a late fee, you’ll have limited control over the outcome because the repayment relationship sits with the BNPL provider.
Operational Risks You’ll Need To Manage
Beyond the fees, BNPL changes how your daily operations and finance workflows run. Planning for these changes will save headaches.
Reconciliation And Cash Flow
BNPL settlements usually arrive as net amounts after fees and may batch multiple orders. This can complicate reconciliation compared to standard card payments. Set up clear processes in your accounting software to separate BNPL settlements, and agree with your bookkeeper how to handle timing differences and adjustments for refunds. If you collect customer payments online, your Website Terms and Conditions should also reflect your payment and refund process for BNPL orders.
Dependence On Third‑Party Technology
Any third‑party checkout comes with availability and integration risk. If the BNPL widget fails at checkout, customers may abandon their cart rather than switch payment methods. Keep a fallback in place (for example, a clear message encouraging an alternate payment) and monitor failed payment analytics so you can troubleshoot quickly with the provider.
Sales Quality And Returns
Because BNPL can encourage impulse purchases, some businesses see a lift in average order value alongside higher return rates. Factor potential return shipping, restocking, and customer support effort into your decision.
Legal And Compliance Considerations For BNPL
Offering Afterpay doesn’t turn your business into a lender, but you still need to manage your own legal obligations when you promote, sell and refund BNPL purchases.
Advertising And Checkout Disclosures Under The ACL
How you present BNPL at the product page and checkout must comply with the Australian Consumer Law (ACL). Avoid statements that could be misleading or incomplete, and ensure total prices, key conditions and material limitations are clear. If you reference instalments or “interest free”, make sure the context is accurate and easy to understand. It’s wise to refresh your site copy against your obligations regarding misleading or deceptive conduct.
Refunds, Guarantees And Your Policies
Customers don’t lose ACL rights because they paid via BNPL. Your refund and warranty processes should apply consistently across all payment methods. Make sure your customer‑facing policies are up to date and accessible, and that your team knows how to action BNPL refunds through the provider’s portal as well as in your own systems. Many online sellers document this in their Online Terms and Conditions so expectations are set before checkout.
Privacy And Data Protection
If you collect personal information when customers order (name, email, delivery address and so on), you’ll need a compliant Privacy Policy and practices that match it. While BNPL providers handle repayment data, you still control the purchase experience and any customer information you collect. Have a consistent approach to data retention and access requests, especially if customers contact you about their BNPL order details.
Evolving Regulation
BNPL has been the subject of ongoing policy attention in Australia. Future changes could affect how BNPL providers operate and what merchants must display or do at checkout. Keep an eye on guidance from regulators and be prepared to update your processes and site wording if the rules shift.
Practical Steps If You Decide To Offer Afterpay
If BNPL still makes sense for your customer base and average order value, a few practical moves will minimise risk and admin.
Review Your Merchant Agreement Before You Sign
Go through the fee structure, settlement timing, refund mechanics, liability allocations, support SLAs and termination rights. If anything is unclear or you need help negotiating the fine print, a Contract Lawyer can review your merchant agreement and flag issues specific to your business model.
Tune Your Pricing And Promotions
Model the impact of BNPL fees on your mix of products and channels. You may choose to exclude certain low‑margin SKUs from BNPL, or adjust pricing or promotions to preserve your overall margin.
Update Your Online Store And Policies
Make sure your product pages, cart and checkout accurately describe available payment options and any material conditions. It’s also a good opportunity to refresh your Website Terms and Conditions and returns page so the BNPL process is clear to customers and consistent with your provider’s workflows.
Train Your Team
Create simple internal guides covering how to process a BNPL refund, how to respond if a customer queries late fees, and when to escalate issues to the BNPL provider. This keeps responses consistent and reduces back‑and‑forth with customers.
Monitor And Adjust
Track adoption rates, conversion impact, average order value, return rates and customer service tickets related to BNPL. Set a review point (for example, 90 days after launch) to decide whether BNPL is improving profitability overall or needs changes.
What Legal Documents Will Help Protect Your Business?
The right documents make your BNPL setup clearer for customers and reduce disputes.
- Online Terms and Conditions: Set the rules of sale, including payment methods (like BNPL), shipping, refunds and limitations of liability. Many ecommerce businesses use dedicated Online Terms and Conditions tailored to their store.
- Website Terms and Conditions: Cover how people use your site, protect your intellectual property and explain acceptable use alongside your ecommerce terms. You can keep these current with a comprehensive Website Terms and Conditions page.
- Privacy Policy: Explain what personal information you collect, why you collect it and how you handle it. This is essential when you operate online and integrate third‑party payment tools, and should be a proper Privacy Policy that reflects your actual practices.
- Warranties and Refunds Statement: Make sure your policy reflects the ACL and clarifies the process for BNPL orders so customers know what to expect if there’s a problem.
- Merchant Agreements: Keep a signed copy of your BNPL agreement on file, and consider a periodic legal review if the provider’s terms are updated or if your sales volume changes significantly (your Consumer Law obligations stay the same regardless of payment method).
Not every business will need every document listed above, but most online sellers will need a combination of these. Having them accurate and consistent with your BNPL workflows will reduce complaints and help your team give clear answers.
Key Takeaways
- BNPL can increase conversions, but the merchant fees and extra admin are the key disadvantages for Australian businesses and can erode margins if not planned for.
- Refunds and returns for Afterpay orders take extra steps and time, so align your internal process and customer policy to avoid confusion.
- Your brand experience can be affected by repayment or late‑fee issues managed by the BNPL provider, even though those terms are outside your control.
- Make sure your product pages, checkout and policies comply with the Australian Consumer Law and that your site has up‑to‑date Website Terms and Conditions and a compliant Privacy Policy.
- Carefully review your merchant agreement, model the true cost impact, train your team on BNPL workflows and monitor performance so you can adjust quickly.
- If you’re uncertain about the legal terms or compliance angle, a quick review by a Contract Lawyer can help you set up BNPL in a way that supports your business rather than undermining it.
If you would like a consultation on BNPL agreements, your consumer law obligations, or updating your online terms and policies, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.
