Are you a small business owner who wants to expand their business across the country or even on an international scale? Apart from the quality of your products and client services, other factors influence sales. One of the critical factors that can enhance your sales depends on the payment options you provide to your customers.

What is Customer Financing?

Customer financing for small business is a process in which the client buys a product and pays for it over some time. It is almost similar to the buy now, pay later or BNPL business model.

The consumer receives benefits from paying in installments rather than clearing the dues immediately.

This article will provide a comprehensive guide about business financing for customers in a simple language.

What are the Benefits Of Consumer Financing For Small Businesses?

Now that You know what customer financing is, how do you implement it in your own business?

Let us highlight the key benefits of customer financing for small businesses.

1. Retention of Customers.

  • If you are starting as a small business owner, one of the primary requirements is capital investment.
  • However, if your business sells expensive goods, people might be reluctant to purchase from your store. Consequently, you will fail to reach the initial break-even point.
  • The above problem is solved miraculously if a company provides customer financing. The consumer chooses to buy a product and pay for it in installments, which makes them more prone to purchase an item from the store.
  • Hence, you can retain customers in the long run by using this business model.

Often you might have noticed heavy traffic on your website but negligible sales. The cost and the budget of the product might be one reason your sales are not increasing. Sellers can efficiently tackle the problem if they use customer financing.

  • Small businesses have grown sales exponentially after they provided consumer financing for businesses.
  • You have to mitigate the gap between browsers and consumers. The most efficient way to do this apart from giving discounts on your products is by introducing customer financing programs.
  • As a result of this, when a consumer learns that they have the option of paying in installments, they might consider buying from your business.

3. Customize The Payment Layout.

It would be best if you considered consumer financing for merchants.

The customization of payment layouts offers an array of options for your consumers.

Customer Financing

Customer financing programs for small businesses have an immediate effect on sales. 93% of the consumers wanted to use ‘pay later’ options repeatedly.

Along with conventional transaction methods like ”pay on delivery, ”pay using e-wallets,” or direct bank transactions, diversify the monetary layouts.

Introducing customer financing services will satisfy the customers who are reluctant to pay a hefty amount in one go. As a result, a small business offering to finance customers witnessed a jump in their sales.

The Two Types of Credit to Help Grow Your Business

A Brief Overview Of The Types Of Consumer Financing For Businesses.

The small or large business essentially relies on two types of customer financing.

Here is an explanation for each type of consumer financing option

1. Setting The Financing Model Yourself. 

The first type of consumer financing model includes the business owner (that is you) setting up a plan for the whole process.

  • In this model, you will have to decide on the number of installments, fee for each installment, credit interests, and penalty fee on default.
  • You will have to oversee the majority of the interest when the customer should pay and other nuances regarding the pay later option.
  • This is a cumbersome process for small business owners as they are busy with other engagements relating to their business.
  • It is also hard to keep track of all the customers who have used the buy now pay later option.

Hence we have another method or alternative which is more feasible.

2. Handing Over The Consumer Financing Responsibility To A Mediating Company.

Several companies are available in the market whose sole job is to act as a mediator or an arbitrator between the business owner and the consumer. These Companies Act as agents between the customer and the seller.

What are the Benefits of Using a Third-Party Company for Consumer Financing?

Using a third-party company for consumer financing comes with many advantages. Some of them are as follows-

  • You do not have to go through the cumbersome process of fixing interest rates for each installment, tracking, and collecting fees.
  • The most significant advantage of hiring an arbitrator is that once the consumer’s credit request is approved, you(the small business owner) get the total amount up front!
  • After receiving the payment, the consumer will pay the third-party agency directly.

How Does Hiring A Mediating Company Work For Financing Consumers ?

As mentioned earlier, hiring a mediating company has several advantages for the small business owner. Here is a breakdown of what exactly happens when you hand over the consumer financing to the third-party establishment.

  • First of all, the mediator company will check the credit details of the consumer. They will run a brief background check to verify the authenticity, repeated defaulters, and other parameters.
  • Once the credit request is approved, they will pay you (the business owner) the total amount.
  • After you receive the full payment, the consumer will directly pay the arbitrator company, according to the interest rates.

Now that you have a clear overview of the consumer financing system, here are some key factors to consider before choosing this business model.

Key Points To Keep In Mind Before Starting Customer Financing Programs For Small Businesses.

1. Consider Whether Your Customers Will Utilize This Option.

Consumer financing is an easier option for payment that you are introducing in your small business for the consumers. So first you have to make sure that they are willing to use this service. You can do so by providing assistance to your existing customers or the new browsers on your website.

2. Always Consider The Risk Factors.

Another major thing that you should keep in mind is that there is always a risk involved and consumer financing. Some customers might be defaulters and do not pay the outstanding amounts on time. You will be liable and answerable to the third-party company if any failure happens regarding installments.

The Bottom Line.

Consumer financing is a very viable and feasible option for small business owners. It increases the traffic on your website and boosts your sails. As a result, consumers are more likely to buy expensive goods from the store that they wouldn’t have otherwise.

That being said, you should always keep in mind that any business model comes along with risks. Irresponsible defaulters or an inappropriate customer base can fail this business model. Hence you should do your best to optimize your services according to your customer base.

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