Paypal enabling “Bill me later” finacing option for small businesses.

PayPal is enabling “Bill Me Later” a service  that lets your customers buy now and pay later with a credit line that’s built into their PayPal account. At checkout, a buyer simply provides his birthday and the last four digits of their social security number, accept the terms and the purchase is complete.

Bill Me Later will give small business owners a way to increase sales conversions and boost order sizes going into the holiday season. And it expands the utility of Bill Me Later to merchants who have never been able to offer instant financing.

For merchants who participate, they will be able to offer Bill Me Later as an option at checkout and will get paid right away from PayPal. There is no upper limit for how much people can finance using Bill Me Later, and the transaction is approved or denied within about one minute. If a consumer takes longer than six months to pay off their purchase, they will pay an annual percentage rate of 19.99 percent.

This should be helpful for consumers who might be a little hesitant to make bigger purchases due to the tough economy. For businesses, offering Bill Me Later could push someone to add a few more items to their shopping carts if they’re short of a the $99 threshold. Forrester Research found that 43 percent of Bill Me Later sales are in addition to regular online sales and offering Bill Me Later boosted average order sizes by as much as 75 percent.

PayPal has been testing Bill Me Later with some small merchants and some are reporting larger average purchases through the service and a bigger percentage of sales flowing through PayPal as well.

By expanding the use of Bill Me Later, PayPal continues to show how it can become an alternative to traditional credit cards. And it demonstrates how PayPal’s purchase of Bill Me Later in 2008 is now paying off for the online payment giant.

Additional reporting from GiGaOM and Bill Me Later