Buy now pay later company Sezzle Inc will slash its North American workforce in a bid to improve the company’s cash position and “establish a path towards profitability”.

The market has lost its enthusiasm for the BNPL growth story and stock prices have fallen heavily. This is forcing companies like Sezzle to focus more of current costs, bad debts and cash flows, and less on blue sky.

Sezzle chief executive Charlie Youakim said in a statement: “Sezzle has experienced significant growth in its history and is now at an important juncture, as we look to take decisive steps towards profitability and free cash flow.”

Sezzle said workforce reductions will be made in almost all business operations. It expects to cut 20 per cent of jobs in North America.

It is hoping to achieve US$10 million of annual cost savings.

The company may have to take other cost-cutting steps to achieve its goal. Net cash outflow from operating activities last year was US$72.1 million.

One area it will need to address is bad debts. It reported charge-offs of US$40.6 million in 2021 – up from US$11.9 million in 2020.

The company said its “non-integrated” product offerings with enterprise merchants drove “adverse selection”, resulting in higher provision expense.

“We have implemented and continue to implement process to reduce loss rates.”

Sezzle entered into a merger agreement with rival BNPL provider Zip Co last month, in a deal that will see Zip acquire Sezzle in an all-scrip transaction worth around A$491 million. 

Zip said the deal would enhance its scale and product offerings and give it the capacity to grow more quickly in the United States, where Sezzle does most of its business.

The combined group will have total transaction volume of $10.4 billion – Zip contributing $7.9 billion and Sezzle $2.5 billion.

Both companies are loss makers. Zip lost $172.8 million in the six months to December and Sezzle lost US$75.1 million in the 12 months to December.