Are you considering offering your customer financing but are unsure where to begin? No need to panic! Find out morereading on! This guide on customer financing will educate you on the essentials and demonstrate how to increase business revenue while facilitating client purchases.
Table of Contents
Customer Financing Foundations
What is consumer finance, how does it work, and how do firms offer customer financing?
When a finance provider either gives a customer the money they need to conduct a transaction or pays for it on their behalf, this is referred to as a client financing agreementThe client then makes periodic payments to that provider until the debt is fully repaid or the conditions of the contract are satisfied.
Small businesses might not have the option to partner with banks to develop their own in-store lending solutions, unlike larger retailersThe services of third-party financial businesses may be useful hereYou may collaborate with an established provider to give your customers more straightforward payment optionsIt has been demonstrated that this strategy works for owners of small businesses across the nation.
What is the client financing process?
Depending on the customer financing services you use, these steps may vary, but this is how it generally goes:
A customer is prepared to make a purchase and wants to use your financing option.
- They use their smartphone or a computer at the store to apply (often online).
- If they are approved, the provider notifies them of their spending limit and provides instructions on how to make a payment.
- After concluding their transaction with an in-store salesperson, the customer leaves the establishment carrying the financed item.
- Until the account is fully paid, the client makes recurring payments to the loan company.
Different types of Customer Financing Programs
Primary finance refers to conventional loans, credit cards, and other financing options that heavily depend on a client’s credit score to determine whether or not they are approvedPrimary financiers are paid interest on amounts loanedPeople with excellent to very good credit frequently pay lower borrowing ratesIt’s doubtful that principal financing will be granted to those with fair to low credit or no credit.
For customers with various types of credit, lease-to-own and loan options are available as secondary financingCustomer financing companies like Accelitas consider a variety of factors when qualifying customers for lease-to-own financing.
What Are the Benefits of Customer Financing and How Can You Make It Better?
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Order Values Need to Go Up
Data shows that when businesses start providing consumer finance, order size often increases15%Larger orders equate to greater revenue for your businessEverything comes down to the client’s purchasing abilityWith financing, a customer is more likely to acquire exactly what they want rather than settling for something that is less expensive but isn’t close to what they want.
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There are more closed sales
Every salesperson may remember an occasion when a customer’s original cost proved to be a deal-breakerOffering client finance is an easy way to maintain those sales and expand your business as a wholeCustomers who are unable to make a single sizable payment may be permitted to do so in a series of smaller onesThese consumer financing options that allow customers to “buy now, pay later” have the potential to develop into one of your most successful sales tactics.
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Reduced anxiety
Working with a third-party financing source is more simple and easier than developing an internal solutionYou are freed from the responsibility of managing client financing accounts, and the threat of customer nonpayment is also eliminatedDepending on your source of funding, you may receive upfront payment; however, when a customer finances a product, most companies pay you and take full responsibility for payment collectionYou’ll have more time and energy to concentrate on your clients’ satisfaction and the growth of your business.
What Else Should You Take into Consideration Before Deciding on a Customer Financing Partner?
Nearly all businesses that offer customer financing options, charge a fee for their servicesBefore signing up for a particular service, you should educate yourself on the associated costs, how they will affect you, and whether they are beneficial.
Some businesses impose a predetermined monthly or yearly costOthers take a small cut of each financed sale as paymentThe amount of money you intend to borrow and the interest rate you offer will determine what’s ideal for youIt’s also a good idea to find out about additional startup fees before signing any agreements.
If your service provider claims there are no merchant fees, your customers will most likely pay the costIf these costs are too high, purchasers can opt not to finance at all, which is bad for everyoneSelecting a credit partner with reasonable rates is essential.
Financial institutions vary widely from one anotherSome do a better job than others of meeting the needs of small enterprisesUse the following checklist when deciding on a financing provider for your small business:
- There are no prerequisites for minimum sales.
- No lengthy contracts are necessary.
- A straightforward application and approval process is advantageous to customers.
- There aren’t any software or hardware prerequisites.
- The maximum deduction from each financed sale is 5%.
- Customer non-payment has no impact on revenue.
- In addition to these conditions, it’s a smart idea to ask a potential financial company a few important questionsHow many small businesses have they worked with in the past? What are the consumer expenses and interest rates? Do they let you offer customers special discounts and deals?
Last but not least, think about how well the provider will meet your customers’ needsDo your customers qualify for the loans you provide? Is it simple and uncomplicated? To make a deft and educated choice that will ultimately be advantageous to your business, take into account the responses to these questions.
