Are you losing customers to competitors? To attract more customers and see your sales revenue increase, think about business financing for customers. So, what is customer financing for small businesses?
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What Is Customer Financing?
As it sounds, customer financing is a payment plan that allows customers to purchase products or services from your business. Therefore, a third party finances the customer’s purchase enabling the merchant to receive the payments upfront. Consumer financing for businesses may offer interest-free plans, while other options require that the consumer pays a certain percentage as interest. For the merchant to provide the service, he may be required to pay a service fee, as it is an opportunity to get more customers to your business.
So, What Are Some Of The Customer Finance Options Available For Small Businesses?
When you think of small businesses offering money to consumers, you may be interested to know how this works. Ideally, you can provide credit to customers, which sounds simple and straightforward compared to consumer financing for businesses. Well, the reality is that issuing credit to customers will attract more customers to your business. However, very soon, you will be experiencing severe cash-flow issues.
Therefore, instead, you need to consider customer financing, which allows the business to make sales and receive payments upfront for better cash flow. But how do you offer customer financing for businesses?
There are two options when it comes to customer financing for small businesses. In this article, we will look at the two alternatives available for small businesses today.
1. Online Checkout Cart
An online checkout cart is a software that allows the customers to shop for products on a website. Ideally, the online shopping cart system includes a full range of e-commerce capabilities and can consist of the customer financing option. Therefore, when the customer comes to checkout and discovers there is not enough cash to pay for the item, they can apply through customer financing programs for small businesses. The system runs a background check to ascertain the customer’s creditworthiness and decide whether to allow the checkout. Therefore, within a few seconds, the customer will know whether the request has been approved or declined.
2. The POS System
The second option is where the customer is purchasing at the traditional brick and mortar shop. Therefore, when paying for the products or services, the customer could choose to apply for small businesses’ consumer financing programs. The customer financing company will run a credit check on the customer to determine whether to approve or decline the application. For the online checkout cart, the credit check occurs within seconds, and a decision is out.
For either of the two options discussed here, the customer may have to pay an interest rate, unless the financing provider offers a promotion. Moreover, the merchant will be charged a fee, as the customer financing program works in his favor. Therefore, the process of providing customer financing is simple. If the customer is creditworthy, the consumer-financing program will enable the customer to afford the product they needed but didn’t have enough cash to pay out of pocket or through the credit card.
For the merchants, offering consumer financing options attracts more customers to your business. This is as the consumers know that so long as they qualify for the credit, they can receive the financing and afford the products or the services they could otherwise not afford. Therefore, owners of small and medium enterprises should consider business financing for customers. To understand why this is important, we examine some of the top advantages of small businesses offering money to customers.
Advantages Of Customer Financing
1. You Gain Customers
Ideally, small businesses offering money to a customer allows increasing the number of customers. This is because the financing option attracts customers who would otherwise not have purchased from your shop. Therefore, if you target customers who are in the market for a large purchase like a fridge or washing machine, you are likely to make the sale.
2. Increased Sales
The general reason for attracting more customers is to see your sales going up. As more customers purchase from your shop, they are also spreading the word, and the next time they will come with their friends. Eventually, you will be competing with the mega shops within your region.
3. Upfront Payments
If you are working with a customer financing company, the payments will be made upfront. Therefore, you can restock and, at the same time, increase customer retention.
On the other side, some risks come with small businesses offering money to customers. Here is an overview of the disadvantages of customer financing.
Disadvantages of Customer Financing for Small Businesses
1. Potential For Bad Debts
Unless the merchant is offering customer financing through a third party, there is the risk of falling into bad debts.
2. Extra Accounts Receivable
Offering customer financing for small businesses through a third party comes with an increased size of accounts receivable. Therefore, you have more tasks reconciling sales.
Overall, consumer financing for merchants offers more advantages over disadvantages. Are you looking for ways to gain more customers and increase sales revenue while improving the cash flow? Introduce customer financing programs for small businesses.