Are you thinking about providing finance to your consumers but don’t know where to start? Do not be alarmed! Continue reading to find out more! This customer financing primer will teach you the fundamentals and show you how to boost your company’s income while making it easier for your consumers to acquire what they need.
Table of Contents
Basics of Customer Financing
How do companies offer consumer financing, operate, and what does it entail?
A client financing arrangement is when a finance provider either lends a customer the money they need to make a transaction or pays for it on their behalf. The client then pays payments to that supplier over time until their debt is paid in full or the terms of their agreement are met.
While bigger shops may collaborate with banks to create their own in-store financing programs, small companies may not have that choice. This is where third-party finance companies may help. You may work with an existing supplier to provide more simple payment alternatives for your consumers. This technique has been shown to be successful for small company owners all around the country.
What is the procedure for client financing?
These stages may differ depending on the service you deal with, but here’s how it works in general:
A consumer wants to use your financing option and is ready to check out.
- They apply (usually online) with their smartphone or a computer at the store.
- If they’re authorized, the supplier tells them how much they may spend and gives them information on how to pay.
- The consumer completes their transaction with an in-store salesperson and walks out with the funded item.
- The client pays the finance provider regularly until the account is settled in full.
Customer Financing Programs and Types
Traditional loans, credit cards, and other financing alternatives that rely heavily on clients’ credit ratings to decide whether they’re accepted or not are referred to as primary finance. On lent sums, primary finance providers receive interest. Those with strong to outstanding credit often pay cheaper interest rates. Those with fair to poor credit or no credit are unlikely to be approved for main funding.
Lease-to-own and loan alternatives are available for people with all credit kinds as secondary financing. When it comes to approving clients for lease-to-own finance, customer financing companies like Snap Finance look at more than just their credit ratings.
What Are the Advantages of Offering Customer Financing and How Can You Improve It?
Order Values Should Be Increased
When firms start offering consumer financing, data reveals that order size improves by 15% on average. Larger orders imply more money for your company’s bottom line. It all boils down to the purchasing power of the client. When a consumer has financing, they are more likely to get precisely what they want rather than settle for something less expensive but isn’t nearly what they want.
More sales are closed.
Every salesman may recall a moment when the initial pricing was a deal-breaker for a customer. Offering client financing is a simple method to keep those sales coming in and grow your organization overall. Customers who are unable to make a single large payment may be allowed to make smaller installments over time. These “buy now, pay later” customer financing options have the potential to become one of your most effective sales strategies.
Less Anxiety
Rather than putting together an in-house solution, working with a third-party finance source is considerably simpler and easier. It relieves you of the burden of handling client financing accounts and removes the risk of nonpayment by customers. It varies on your financing source, but most firms pay you upfront and assume full responsibility for collecting payments when a consumer funds a product. You’ll have more time and energy to focus on your customers and the success of your company.
What Else Should You Think About When Selecting a Customer Financing Partner?
Almost all companies that provide consumer financing charge a fee for their customer financing services. Before you join up with a certain service, you should learn about the fees involved, how they will affect you, and if they are worthwhile.
Some companies charge a set monthly or annual fee. Others charge a tiny percentage of each financed sale as their fee. What’s best for you will be determined by the quantity of money you plan to borrow and the charge % you offer. Before signing any documents, it’s also a good idea to inquire about additional starting charges.
If your service provider says that there are no merchant fees, the expense will almost certainly be passed on to your consumers. If such expenses are excessively high, buyers may decide not to finance at all, which benefits no one. It’s critical to select a lending partner with affordable rates.
Not every financial institution is the same. Some cater to the requirements of small businesses better than others. When considering a finance source for your small business, use the following checklist:
- There are no minimum sales requirements.
- There are no long-term contracts required.
- Customers benefit from a simple application and approval procedure.
- There are no hardware or software requirements.
- A maximum of 5% of each financed sale is deducted.
- Revenue is unaffected by customer nonpayment.
- Aside from these requirements, it’s also a good idea to ask a possible finance business a few key questions. How many small firms have they previously dealt with? What are their interest rates and costs for customers? Do they enable you to give clients exclusive deals and discounts?
Last but not least, consider how effectively the supplier will satisfy the demands of your consumers. Will your consumers be eligible for the financing you offer? Is it basic and straightforward? Consider the answers to these questions to make a wise and well-informed decision that will benefit your company in the long run.