Customer financing can expand your reach by allowing more customers to take advantage of your products or services. Average order sizes increase by as much as 120% when you offer customer financing, And more than half of customers make a future purchase of at least $500 when a business offers customer financing.
That’s some serious food for thought. Many small businesses would love to offer financing, but they aren’t sure how to go about it or how to do it in a cost-effective way.
How Customer Financing Works
Customer financing is an effective way to turn a lead into a paying customer. They can help persuade potential customers who are:
- On the fence about buying
- Deterred by having to make an upfront payment
- Strapped for cash but need your product or service
From retail to services, just about any business can benefit from offering customer financing. While you commonly see this option in brick and mortar stores, more home services companies are also offering financing to its customers.
Financing is typically offered through a third-party lender. Many merchants use Blispay.
Heating and cooling company Affordable Air uses Synchrony Financial to offer customer financing, with loan amounts up to $45,000.
Offering financing may sound like a complicated endeavor, but it really isn’t
How To Offer Financing Without Going Broke
Many small businesses assume that they have to offer financing directly. While this is an option, it’s not the only one. Direct financing gives you more control, but it can also be a costly venture.
In many cases, businesses find that it’s easier and less costly to use a financing firm. When you go this route, you don’t have to worry about your cash being tied up. You also don’t have to worry about:
- Collecting payments
- Following up on missed payments
- Adhering to financing-related business laws
Now here’s the million-dollar question: how much will all of this cost you? The answer will depend on which firm you choose to hire.
There are three main ways financing companies charge businesses:
- No Fee: Some companies do not charge the business any fees. Costs are passed to the customer.
- Percentage: The most common option financing companies use. Businesses are charged a percentage of each financed sale. Most charge between 1% and 5% of the total sale.
- Flat Rate: Some firms simplify the process by charging a flat monthly fee for using their services. The price ranges from $40 to $50 per month. A one-time set-up fee may also be charged.
Choosing A Financing Firm
There are several things to consider when choosing a financing firm to work with. These include:
- No long-term contracts required
- No minimum sales requirements
- No more than 5% taken from each financed sale
- Simple customer sign-up and approval process
- No equipment or hardware requirements
- Customer defaults will not affect revenue
Another important thing to consider is the general creditworthiness of your customers. If a large percentage of your customers have bad credit or no credit, look for a financing firm that caters to these types of customers.
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