Customer financing enables customers to purchase products or services by enrolling in a payment plan. The merchant is paid in full upfront, just like with a credit card. The consumer receives the merchandise immediately but must pay over time. Typically, the client is charged interest on the financing, and the merchant may be required to pay a modest fee for each funded transaction.
Finding techniques to recruit and keep clients is the next step after launching a business. Of course, to do so effectively, you must tailor your business to your customers’ requirements, desires, and finances. Having said that, depending on the type and price of your merchandise, giving consumer financing might be a terrific method to enhance sales and customer loyalty.
Customer financing is offered by both small companies and major brands to turn more visitors into purchases. If this seems like something that may help your company, you might be thinking, “How can I offer customer financing?” We’re here to assist you.
Table of Contents
How to Make Financing Available to Customers
As previously said, customer financing programs provide solutions for clients who wish to purchase your goods and services but are unable to pay the whole amount upfront. By providing financing to your consumers, you essentially make your items or services cheaper for them.
Offering consumers finance boosts customer loyalty and buyer conversion on the merchant’s end. According to one research, extending consumer financing alternatives improves a customer’s average order amount by 15%. Furthermore, 93 percent of clients who utilized credit alternatives in this research stated they would use them again.
If you think customer financing services may help your small business, you’ll want to learn how to do it. In general, there are two approaches to providing consumer finance. The first alternative is to do your credit checks, arrange finance, and oversee payment collection. This approach, however, requires a substantial amount of time and entails the legal duties associated with the use of consumer credit information.
The second alternative is to use a third-party organization to provide loans to your consumers. Working with a third-party supplier means that the firm is in charge of issuing credit offers and collecting consumer payments, saving you time and taking some legal concerns away from your company.
Since the latter is likely to be the best option for most firms, let’s go through how the process works. Here’s how customer financing companies offer finance to clients while utilizing a third-party provider:
- Your consumer will receive the goods or service right away, but they will repay the financing provider in installments. The supplier with whom you work will establish the customer’s payment schedule and how much of the item they must pay in advance.
- The buyer will then ask for financing since they cannot pay the whole amount but still want to purchase the thing. You’ll want to make sure you’ve well-publicized the fact that you provide customer financing so that potential purchasers are aware of this alternative. Customers may apply for financing online, through your POS system, or on their cellphones, depending on your business. Your finance provider may do a credit check on the consumer at this point.
- The customer first sees a product or service they wish to purchase, either in-store or online.
- Your consumer will know if they have been accepted or rejected for credit within seconds. If the customer is accepted, you will get immediate payment for the merchandise.
- Unless the finance provider is giving a deal, the consumer will often be required to pay an interest rate. Furthermore, like with any other credit card processor, you may be required to pay a small percentage for each funded transaction.
As you can see, the procedure of providing consumer financing options is rather straightforward. The most crucial step in determining how to give finance to your consumers is to select the appropriate source for your company.
Advantages of Customer Financing
As previously said, several studies suggest that providing financing to clients is ultimately good for retailers. As a result, let’s look at some of the most important advantages of client financing for small businesses.
Payments in Advance
If you deal with a third-party consumer financing organization, they will pay you the entire amount of the item upfront and then collect additional payments directly from the customer. This is a significant benefit since it not only reduces your risk but also boosts your immediate cash flow, making it simpler to invest in other areas of your organization. In this approach, you’re providing a valued and helpful service to your consumer while enhancing your company’s cash flow, because financed-backed transactions operate the same as any other purchase that was paid in full ahead.
You Gain Clients
Ideally, by giving consumer financing, you are not only increasing your sales but also attracting customers who might not have been attracted otherwise. To put it another way, if your target consumer is in the market for a significant purchase, such as a couch or a refrigerator, they may be more inclined to buy from you rather than a rival that does not provide financing. Furthermore, because they already know they’ll be accepted for your payment plan, the same consumer is more likely to return to your business for future pricey purchases, enhancing your customer retention.
Finally, and as previously noted, the overall goal of customer financing options is to improve sales by converting more visitors into customers. By giving a payment plan on your pricey products, you’re allowing clients who would otherwise leave your business empty-handed to finish a larger transaction. As a result, by encouraging customers to complete more transactions of more expensive things, you increase income for your company.