Even as a business owner, it’s important to think like a customer. Set aside your preoccupations with cash flow and income statements and bills. Just take a minute to stop and think: What do my customers need?
Oftentimes, your customers might want to purchase your products or hire your services, but they don’t have enough money. It’s important for you to recognize that that might be a primary reason why your sales aren’t meeting your targets.
Fortunately, there’s a way to boost sales without lowering the price of your product. By offering customer financing, you can make the sale and postpone when you receive the full amount for the purchase. You can allow the customer to pay overtime with little or no down payment at the point of purchase.
But 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 useful for businesses that sell big-ticket items (furniture, vehicles, heavy machinery, etc.), or that provide extensive and expensive services (home renovations, repairs).
How you can afford customer financing
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 business loan to bring in the extra short-term cash that 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 use a business loan to finance some of your more aggressive growth strategies as well.
And make no mistake, customer financing is a growth strategy with tremendous potential upside for your business.
Benefits of customer financing
- Improves customer loyalty: Offering a lenient payment plan can generate goodwill. Customers will appreciate your flexibility, especially if they were unable to receive the same treatment with a competitor. A positive purchasing experience tends to lead to continued affection for your business, which hopefully will generate long-term or even lifetime customers. It’s a proven way to engage your customers.
- Helps you make sales you might not be able to make otherwise: Sometimes, customers just don’t have the ability to 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 to not make the purchase. So customer financing might very well be the difference between making a sale and leaving one on the table. Offering a flexible repayment plan can bring in additional revenue for your business that you might not have realized with it.
- 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. An influx of $1,000 for a pay-at-purchase sale might translate to a total of $1,100 or more over time if you charge interest. Be warned: Adding interest rates comes with its own risks. The feeling of goodwill you can generate from being flexible with payment could be undermined 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 that 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.
How does customer financing work?
While there are different ways you can tailor your customer financing options to account for your business’ 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 purchase
- Give the customer the product o deliver the services as agreed
- Receive regular payments from the customer
- Close out the purchase once the full payment has been received
Story of how customer financing works
Juan Ocampo is the owner of Flaco’s Custom Food Trucks. As you can imagine, buying a food truck can be an expensive proposition—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 not 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 with Camino Financial 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.
What steps can you take to offer customer financing?
To offer financing options for your customers, you need to ensure that you have the available cash 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 Camino, 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 taking out a loan with Camino will help you make more money overall with little risk.
Even if you never thought about taking out a business loan to offer flexible payment options for your customers, now is the perfect time to consider it. 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.