You can offer your customers financing through loans, lines of credit, overdrafts, and credit cards. This is a highly effective method to increase sales and grow your customer base by making products or services more accessible.
In our article, we discuss how to offer customer financing and provide you with advice on running financing programs to keep your business growing.
How to Offer Financing for Small Business Customers
Customer financing can help you build customer loyalty and even allow you to make sales you wouldn’t have been able to make otherwise.
By developing loyal customers and increasing your overall sales, customer financing might just be the solution you’ve been looking for to grow your business.
Knowing that, here’s a quick step-by-step guide to help you to start:
Determine if financing is right for your business
Not every business will benefit from offering finance, so it’s important to research and make sure it makes sense for your company.
Find the right financing partner
Once you’ve decided to do it, you’ll need to find a partner to help you provide financing options to your customers. Various companies offer this service, so it’s important to shop around and find one that fits your needs.
Set up financing options for your customers
Once you’ve found a financing partner, you’ll need to set up the financing options you’ll offer your customers. This includes things like interest rates, repayment terms, and down payment requirements.
Train your staff on how to offer financing
Your staff will be the ones interacting with customers and offering financing options, so they must be properly trained. Make sure they understand the ins and outs of your financing program so they can answer any questions customers may have.
Promote your financing options to customers
Once everything is set up, you’ll need to let your customers know that you’re now offering finance. You can do this through marketing, advertising, and word-of-mouth.
Ensure that you have cash available
To offer financing options for your customers, you must ensure that you have the cash available to continue operating your business.
Most businesses need to find some way to overcome the cash deficit of not receiving payment for the purchase right away.
A business loan from Camino Financial could be the ideal option for you. With us, you have a lot of discretion over how much money you borrow, and the interest rates are reasonable and affordable.
With friendly terms and conditions, you can be sure that a loan with Camino will help you make more money overall with little risk.
Even if you have never thought about taking out a business loan to offer flexible payment options for your customers, now is the perfect time to consider it.
How to Choose The Best Financing Option For Customers
When choosing whether to finance a purchase through a third-party lender or an in-house loan, there are many factors to consider. Some of the key considerations include:
- Type of purchase being financed.
- The creditworthiness of the borrower.
- The terms and conditions of the loan.
- The interest rate and fees associated with the loan.
- The repayment period.
- The flexibility of the loan terms.
When considering a third-party loan, it is important to compare the terms and conditions of the loan with those of an in-house loan. Some things to look at include:
- The interest rate.
- The fees associated with the loan.
- The repayment period.
- The flexibility of the loan terms.
When choosing a loan, it is also essential to consider the borrower’s creditworthiness.
If the borrower has a good credit history, they may be able to get a lower interest rate on a third-party loan. However, an in-house loan may be better if the borrower has a poor credit history.
You should base the decision of whether to use an in-house loan or a third-party loan on your customers’ needs and profiles; this lets you analyze which financing solution fits your business.
Consumer Financing Options for Small Businesses
There are a few different consumer financing options available to small businesses
In-house loans and third-party consumer financing are two of the most common.
In House Loans
In-house loans are typically offered by banks or credit unions.
The terms and conditions of these loans will vary depending on the lender, but they usually require the borrower to have good credit.
Third-Party Financing Providers
Third-party consumer financing is another option that is available to small businesses.
This type of financing is provided by companies that specialize in consumer financing.
The terms and conditions of these loans will also vary depending on the lender, but they usually have more flexible credit requirements than in-house loans.
Both in-house and third-party consumer financing options have their advantages and disadvantages. It is important to compare the different options before deciding which is best for your small business.
Third-Party Financing Options to Offer Financing for Customers
Finding the right third-party financing companies to partner with can be challenging. There are many options out there, and it can be tough to know which is right for your business.
That’s why we’ve listed some of the most popular options you should consider:
PayPal Credit is a financing option that allows customers to pay for purchases over time.
It’s available to anyone with a PayPal account, and you can use it at any business that accepts it.
One of the main benefits of this platform is that it’s very easy to use. Customers simply select it as their payment method at checkout, and they’re automatically approved for financing.
Another advantage of PayPal Credit is that it has low-interest rates. However, one downside is that it’s not available for all businesses.
Square Installments is a financing option offered by the payment processing company Square.
It’s available to any business that accepts credit cards through Square. One of Square Installments’ main benefits is its low-interest rates.
One disadvantage of Square Installments is the fee for using the service.
This fee is typically around 3% of the total purchase price, which can add up if you are financing a large purchase. Additionally, the platform is only available for certain types of businesses, so you will need to ensure that your business qualifies before applying.
AfterPay is one of the leading customer financing companies in the world.
They offer a wide range of flexible payment options, so you can find one that works for your business.
And they have a great reputation for being easy to work with and providing excellent customer service.
Affirm is a popular third-party financing company that offers flexible payment options for online and in-store purchases.
They work with a wide range of businesses, from small businesses to major retailers, so you can be sure they’re a great option for your customers.
Sales Channels Where Businesses Can Offer Financing
Financial institutions that offer POS financing are often the best in their industry. They make it easy to integrate with your favorite e-commerce platform so you can streamline checkout and keep all of your sales data within one system!
Businesses can offer customers financing through various channels, including in-store POS, website checkout, and online product pages. By offering financing options, businesses can make it easier for customers to purchase their products or services.
- In-store POS
- Website checkout
- Online product pages
So when deciding on your financing options, you can prioritize the ones that let you connect their systems across all your sales channels.
What to Keep In Mind When Offering Finance to Your Customers
- Make sure you understand your customer’s needs and financial situation.
- Don’t offer financing that your customer can’t afford.
- Consider the terms of the financing carefully.
- Be transparent about the cost of financing.
- Keep in mind that not all customers will want or need financing.
- Make sure you have a good understanding of the customer’s credit history.
- Be prepared to answer any questions the customer may have about financing.
- Don’t pressure the customer into taking out financing if they’re uncomfortable with it.
- Remember that you can consistently offer other options if the first one doesn’t work out. So you build the best customer financing programs to improve the payment service in your business.
Other considerations to make when offering financing
When you’re considering offering financing to your customers, there are a few other things you’ll need to take into account.
Implementation, scalability, cost, risk, and flexibility are all important factors that will affect your decision.
- Implementation is key when it comes to financing. You’ll need to make sure that you have a plan in place for how you’ll finance your customers’ purchases and that it’s feasible in the long term.
- Scalability is also important to consider. Can your financing plan accommodate growth? Is it flexible enough to handle changes in demand?
- Cost is another key concern. How much will it cost you to finance your customers’ purchases? What kind of interest rates will you need to charge? And what kind of fees will you need to pay?
- Risk is also a factor to consider. What are the risks associated with offering financing? What happens if your customers default on their loans?
- Flexibility is an important consideration. Can you offer different financing options to different customers? Is it easy to adjust your financing terms if needed?
These are all important factors to consider when deciding. Weigh all of them carefully before making a decision.
How to Advertise Financing Options
There are many ways to advertise financing options for small businesses:
- The most common and effective method is online advertising. You can do it through social media, pay-per-click (PPC) advertising, or search engine optimization (SEO).
- Another way is through print media. You can do it by placing ads in local newspapers or business journals.
- You can advertise through direct mail campaigns.
Things you need to consider when advertising your financing options
- The most important thing is to be clear and concise. The goal is to make it easy for small businesses to understand their options.
- It is important to consider the target audience. Online methods are typically more effective for reaching a wider audience, while print media may be more effective for targeting a local audience.
- Consider the budget. Online methods are often more cost-effective than traditional methods, but they may not be right for every business.
Customers are more likely to buy something when they can afford it, and there are no interest rate hikes. To get people in your audience on board, you should offer financing options for large-ticket purchases or online shopping trips so that consumers don’t have any reason not to purchase from you because of increased costs down the line!
What Is Customer Financing?
The basics, customer financing, allows your customers to pay overtime with little or no down payment. Usually, they make monthly payments that may include interest.
Customer financing is helpful for businesses that sell big-ticket items (furniture, vehicles, heavy machinery, etc.) or that provide extensive and expensive services (home renovations, repairs).
Customer Financing Landscape
Many new players have entered the market, offering more flexible and customer-friendly terms than traditional lenders.
This has made it easier for consumers to obtain financing for their purchase, whether it be a new car, a home improvement project, or anything else.
A few key factors have driven this change in the customer financing landscape:
One is the increasing popularity of online lenders. These lenders often offer more competitive rates than traditional banks, as they don’t have the same overhead costs.
They also tend to be more flexible with their lending criteria, which can be helpful for consumers with less-than-perfect credit.
Another factor contributing to the changing landscape is the rise of alternative lenders.
These lenders offer financing to consumers who may not qualify for a traditional loan.
They often use different criteria to assess risk, leading to more favorable terms for borrowers.
Overall, the customer financing landscape has become much more competitive in recent years.
This is good news for consumers, as it means they have more options available to them when it comes to financing their purchases.
How Does Customer Financing for Small Businesses Work?
While there are different ways you can tailor your business customer financing options to account for your needs, there are eight essential processes.
- Promote your financing options.
- Encourage customers to apply for financing.
- Run a credit check (You can do this by creating an account with Experian Connect.)
- Approve customer for financing.
- Apply financing options to customer purchases.
- Give the customer the product o deliver the services as agreed.
- Receive regular payments from the customer (You will know how to set up recurring payments).
- Close out the purchase once you’ve received the full payment.
Cost of Customer Financing
Understanding the cost of offering this type of financing is important before deciding.
There are a few different costs associated:
- The interest rate on your customers’ loans. This can be a high cost, depending on the loan interest rate you charge and the amount of financing you offer.
- Any fees associated such as origination fees or late payment fees. These fees can add up, so it’s important to factor them into your decision-making process.
- Consider the cost of default on your customer financing loans. If customers default on their loans, you’ll be responsible for paying back the loan amount plus any due interest and fees.
Types of Customer Financing Programs
There are several types of customer financing for small businesses. The most common form is loans. Others include lines of credit, overdrafts, and credit cards.
Loans are a great option for businesses that need a large sum of money upfront.
You can use them for various purposes, such as expanding a business, purchasing inventory, or paying for renovations.
Lines of credit are similar to loans, but they allow businesses to borrow money as needed, up to a predetermined limit.
This can be a useful option for businesses with seasonal cash flow fluctuations.
Credit cards can be a convenient way to finance small purchases or emergency expenses.
However, they typically have high-interest rates, so it’s important to use them wisely and pay off the balance as soon as possible.
Overdrafts occur when a business tries to withdraw more money from its account than it has available. This can be a costly mistake, so it’s essential to ensure you have enough money in your account to cover all of your transactions..
Pros and Cons of Offering Customer Financing
Offering financing to customers has a lot of benefits.
However, there are also some potential drawbacks that you should be aware of, both advantages and disadvantages, before deciding to do so.
Pros of customer financing
It helps you make sales you might not be able to make otherwise
Offering a flexible repayment plan can bring in additional revenue for your business that you might not have realized with it.
Sometimes, customers just can’t pay for your product right away.
If forced to choose between making a full payment now or not making the purchase at all, many will opt not to make the purchase.
So customer financing might be the difference between making a sale and leaving one on the table.
Provides extra earnings
Not only can you make additional sales, but you can also potentially earn more money from those sales if you choose to attach interest rates to the payment plan.
If you charge interest, an influx of $1,000 for a pay-at-purchase sale might translate to $1,100 or more over time.
Be warned: Adding interest rates comes with its own risks. You could undermine the feeling of goodwill you can generate from being flexible with payment if you charge extra for that flexibility—especially if your competitors offer 0% interest rate customer financing options.
Diversifies your customer base
By offering different ways to pay for your products, you can potentially add a whole new segment of customers who had previously been unable to afford to buy from you.
Unforeseen clientele could open up new possibilities, perhaps ones you hadn’t even imagined. Maybe this new group of customers needs an additional item to complement the product they purchased from you.
You might be able to add that new product to your line of inventory and make additional revenue for your business.
Cons of Offering Finance to Customers
- You may not be able to get the full amount you’re owed.
- Customers may take longer to pay you back, hurting your cash flow.
- There’s always the risk that a customer will default on their loan, leaving you out of pocket.
- Offering finance to customers can be expensive, as you may have to pay interest on your loans. (You can charge more to cover possible fees)
- You’ll need to carefully screen customers to ensure they’re a good risk, which can be time-consuming.
- You’ll need to stay on top of the lending market changes to ensure you’re still offering competitive rates.
Why Should You Offer Financing Options For Customers? Additional Reasons
Offering business financing to customers can be a great way to increase sales and grow your business. There are several reasons why you should consider, including:
Improve Customer Satisfaction
Consumer financing can also help improve customer satisfaction by making it easier for customers to get the products or services they need. Customers who can finance their purchases may be less likely to feel “buyer’s remorse” or regret their purchase decision.
This can give you a competitive advantage over businesses that don’t offer finance for business customers.
Those looking for financing may be more likely to choose an establishment that offers it, even if the interest rate is higher than other businesses.
Increased Customer Loyalty
Customers who finance their purchases may be more likely to return to your business in the future and recommend your products or services to others.
Offering a lenient payment plan can generate goodwill. Customers will appreciate your flexibility, especially if they cannot receive the same treatment as a competitor.
A positive purchasing experience tends to lead to continued affection for your business, hopefully generating long-term or even lifetime customers.
It’s a proven way to engage your customers.
It can also give you greater flexibility in how you structure sales and deals. For example, you may be able to offer financing for larger purchases or for customers who are looking to finance multiple purchases.
Improve Cash Flow
Customers who finance their purchases may be more likely to make their payments on time, which can help you avoid late payments or default.
How Can You Afford Customer Financing For a Small Business?
After knowing how to offer financing to your customers, you might be thinking that customer financing sounds good in theory. But does it make financial sense?
There’s a good chance you can make it work. In an ideal world, you have enough cash flow from the sale of other products or from investments that you can afford to offer customer financing without any risk.
But even in the real world, where you need strong cash flows to keep your business going (and growing), you can still make it work.
You can take out a type of business loan to bring in the extra short-term cash you’ll be missing by allowing your customers to pay in monthly increments rather than all at once.
A business loan doesn’t just have to be for emergencies or purchasing equipment, inventory, or real estate. You can also use a business loan to finance your growth strategies.
And make no mistake, customer financing is a growth strategy with tremendous potential upside for your business.
Story of how customer financing works with Camino Financial
Juan Ocampo is the owner of Flaco’s Custom Food Trucks. As you can imagine, buying a food truck can be expensive, especially when Juan tailors it to your exact needs and specifications.
The problem for Juan was twofold:
First, many of his potential clients couldn’t afford to pay for the food truck all at once.
And second, Juan couldn’t afford to receive the full payment at the point of purchase. Offering a flexible payment plan without being conveniently prepared would have negatively affected Juan’s cash flow, disrupting his ability to purchase parts and inventory that he needed to build the trucks for his customers.
So what did Juan do?
He applied for a business loan since our requirements were flexible to finance the lenient payment plan he wanted to offer his customers.
Even though he didn’t receive all the money for each food truck right away, he could still use the money from the business loan to purchase the raw materials he needed to continue making food trucks while he waited to receive the full payment.
From the $50,000 business loan that he took out, Juan received a 60% return. The loan gave him the money he needed to continue to operate his business and serve the clients he wanted to help live out their dreams of opening a food truck. You can read Juan’s full story here.
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How do you offer clients financing?
Partner with a financial institution, financing provider, or lending company. This way, you can offer your clients financing through them, and they will handle all of the paperwork and payments.
Offer in-house financing, where you will extend credit to your clients directly through your business. This can be a bit riskier, but it can also be more rewarding if done correctly.
You can use third-party funding sources such as angel investors or venture capitalists.
Can I offer my customers a payment plan?
You’ll need to decide what makes the most sense for your business. You could offer post-dated cheques, automatic payments from a customer’s bank account, or even credit card payments.
The key is to be sure how much the customer will need to pay each month when the payments are due and what happens if a missed payment.
You’ll also want to ensure that you have a written agreement in place that both you and the customer sign. This will help avoid any misunderstandings down the road.
What does it mean to offer finance?
Offering finance to your customers means giving them the option to pay for their purchase over time rather than all at once.
This can make it more affordable for them and hopefully increase sales for your business.
How to set up financing for your customers?
First, make sure you understand the customer’s needs and objectives. Second, be aware of the different types of financing available. Third, evaluate the options and select the best one for the customer.