What is the expected impact on cash‑flow timing given customers paying over time through Affirm?
Impact of “Pay‑over‑time” (Affirm) on Boot Barn’s cash‑flow timing
| What happens when a customer chooses an Affirm installment | How it translates into cash‑flow timing for Boot Barn |
|---|---|
| Customer selects an “pay‑later” option at checkout – the purchase is recorded immediately, but the consumer’s cash is spread over 3 – 12 months (or whatever term the BNPL product offers). | Boot Barn does not wait for the consumer’s installments. In most BNPL models, the merchant (Boot Barn) receives the full purchase amount (minus a processing‑fee discount) from the BNPL provider within a few days of the sale. The BNPL partner (Affirm) assumes the credit‑risk and collects the installments from the consumer. |
| Affirm’s role – acts as a financing intermediary, front‑loading the payment to the merchant and then recouping the amount from the consumer over the agreed schedule. | Cash‑inflow timing is accelerated (or at least unchanged). Boot Barn’s cash‑conversion cycle is not extended by the consumer’s repayment schedule; the company gets the cash (or a near‑cash equivalent) almost immediately, while the “pay‑later” label is simply a marketing and financing tool. |
| Fee structure – BNPL providers typically charge a merchant‑discount rate (e.g., 2‑5 % of the transaction) and may also levy a per‑transaction or monthly service fee. | Cash‑flow net of fees is received earlier, but the net amount is slightly lower. The timing advantage is offset by a modest reduction in gross margin because of the fee. The net cash‑flow impact is: Cash received ≈ Gross sale × (1 – BNPL‑fee) within a short settlement window (often 1–3 business days). |
| Risk profile – the credit‑risk of the consumer is transferred to Affirm. Boot Barn is protected from defaults, charge‑backs, and collection‑costs. | Cash‑flow certainty improves. Since the merchant is no longer exposed to the consumer’s repayment risk, the expected cash‑flow is more predictable, even though the amount is marginally reduced by fees. |
| Accounting treatment – the sale is recorded as revenue at the point of sale; the receivable from the BNPL provider is typically net of the discount, and the cash‑flow is recognized when the settlement from the BNPL provider is received. | Cash‑flow timing on the statement of cash flows: • Operating cash‑flows – no major change in timing because the cash is received in the same period as the sale. • Working‑capital metrics – the “Days Sales Outstanding” (DSO) may improve (shorter) because the merchant’s receivable from the BNPL provider is settled quickly, while “Days Payable Outstanding” (DPO) remains unchanged. |
Key Take‑aways for Boot Barn
Accelerated cash receipt – By partnering with Affirm, Boot Barn essentially receives the full purchase price (less a modest fee) within days of the transaction, not over the consumer’s installment schedule. This shortens the cash‑conversion cycle relative to a traditional credit‑card or in‑store financing arrangement where the merchant may have to wait longer for settlement.
Margin compression – The convenience of “pay‑later” comes at a cost: a discount/fee to Affirm (usually 2‑5 %). The net cash‑flow is therefore slightly lower than a cash‑sale, but the trade‑off is higher conversion rates and potentially higher average order values.
Reduced credit‑risk exposure – Since the credit risk is transferred to Affirm, Boot Barn’s cash‑flow becomes more predictable. The company does not need to provision for consumer defaults, which can improve the quality of its cash‑flow forecasts.
Potential for seasonal smoothing – During high‑traffic periods (e.g., holiday season), the ability to offer BNPL can boost sales volume without creating a lag in cash receipt. The “front‑loaded” cash‑inflow helps the company meet inventory and operating‑cash needs more comfortably.
Impact on liquidity ratios – Because cash is received quickly, Liquidity ratios (e.g., current ratio, cash‑to‑debt) may improve modestly. However, the net effect will be modest because the primary driver is the fee discount rather than a dramatic change in cash‑timing.
Bottom‑line answer to the question
- Cash‑flow timing for Boot Barn will largely remain unchanged or even improve because the company receives the full purchase amount from Affirm shortly after the sale, not when the consumer makes the installment payments.
- The primary cash‑flow impact is a modest reduction in net cash (due to the BNPL fee) rather than a delay in receipt.
- Cash‑flow certainty improves because the credit‑risk is transferred to Affirm, making the timing of cash inflows more predictable and less dependent on the consumer’s repayment schedule.
In short, customers paying over time through Affirm does not stretch Boot Barn’s cash‑inflow horizon; instead, it front‑loads the cash (minus a fee) while shifting credit risk to the BNPL partner, thereby providing a net cash‑flow benefit in terms of timing and predictability, albeit with a small margin trade‑off.