Businesses can provide loans to their customers by creating internal processes or hiring third parties to work on their behalf. In addition to marketing and advertising, offering new payment options can be a way to increase your company’s profits.
Customer financing for contractors helps customers make payments for services over a stipulated time instead of paying the total amount upfront.
What is customer financing?
Customer financing includes all forms of sales facilitation by any business to improve services for customers. The channels involved include purchasing loans, leases, contracts for conditional contracts, and sales installments.
The customer could owe interest on their monthly payments, but the business will receive the total amount. It works similarly to a credit card, the company gets the money upfront, and the customer pays a third party.
Customer finance may also be available as a store credit card.
Customer financing solutions offer a payment plan if your customers can`t or don`t want to pay for a product or service all at once. For example, rather than paying $450 for an item upfront, your customer could pay in six installments of $75.
Why Is Customer Financing Important?
Customer finance at the point of purchase is critical to transform passive viewers into active shoppers. Therefore, you can increase your sales and conversion rate. At the same time, you can drive customer loyalty and build retention.
It encourages customers to spend more on orders, allowing them to spend more than they would if they had to pay the balance upfront.
Businesses can use customer financing to:
- Increase sales and conversion rates
- Drive customer loyalty and repeat business
- Increase in average spending
What are the Key Types of Customer Financing
There are two critical methods of customer financing:
Internal Customer Financing
You set and manage monthly payments yourself.
If you are looking to offer in-house customer financing, be prepared to spend time managing the process and training your staff. One of the critical things to understand is how to ensure your customers remain trustworthy. You should ensure that you are providing people with repayable funds:
- Determine the terms to offer and how the customer will repay
- Create a process to track payments and collect late payments
- Create new journals to reflect receivables
Make sure you have processes to keep your customer’s credit safe.
Depending on volume, internal customer financing can be time-consuming as you have to create your processes and track customer payments in-house.
So it can cost you more if you need additional help to track pending payments.
Third-Party Customer Financing
Third-party customer financing providers manage the customer loan approval and track monthly repayments.
Third-party client funding outsources program structures and oversight to an external provider. Instead of running credit checks, providing credit plans, and tracking monthly payments, let your customers pay with credit options.
Once an external payment provider approves a customer, the company often receives an upfront payment. Similar to credit cards, the provider pays, not the customer.
Third-party customer financing usually follows the following general steps:
- The company advertises that payment options are available.
- Depending on the customer’s purchases, the company pays using its site or checkout system.
Selecting financing options allows the customer or sales representative to fill out a fundraising request quickly. The customer completes the transaction, and the company receives the total amount within seconds.
After customer purchase approval, the company can receive the total amount from the finance company. After the purchase, the customer gets the goods and initiates payment to the financial company.
The Best Customer Loan Program Depends on Your Business
No program is suitable for everyone. Here are some things to consider when looking for the best consumer loan program.
- Interest and Fees Charged to Customers
- Customer Application Processes
- Fees charged to your company
- Availability (online, in-store, other)
- The credit limit
What are the Benefits of Customer Financing?
Several benefits come from using a quality customer financing program. Some financial firms offer exceptional terms, but not all provide the same benefits.
Customers and businesses that choose to use financial services benefit from being able to pay monthly instead of substantial initial costs. As you can imagine, most people don’t have enough money to spend at once. Enabling monthly payments allows more customers to purchase expensive products. It works great for customers who want to make purchases on a payment plan, but it’s also great for businesses looking to bring new customers into their stores.
How Does it Benefit Customers?
- Long-term payment plans
- Increases potential for more customers
- It presents an excellent channel for building and restoring credit history
- Favorable terms from multiple financial companies
How Does it Benefit Businesses?
- More sales to grow your business
- Increases retention
- Expands the customer base
What are the Cons of Customer Financing?
Despite these notable advantages, customer financing may not be suitable for all businesses, especially if they exclude working with third parties.
Consider the following cons:
- Bad Debt
Even if you do a thorough credit check before handing the money to the customer, the customer is still responsible for their finances. A customer can default on payment anytime, which means you can run out of that money.
However, you have to take the risk.
Even with third parties, most merchant agreements allow you to cancel the contract anytime. Frequent chargebacks and customer issues can cause providers to terminate your account.
2. Extra Accounts Receivable
You can save money by providing customer financing yourself rather than hiring an outside company, but you must calculate the cost of increasing the size of your accounts receivable department. Whether you need to hire another team member or spend your own time tracking and tracking funding payments, doing customer financing yourself means additional costs.
3. Impact on Cash Flow
You can receive the payments you need, but offering internal customer loans may not be the best option if cash is critical to your business. If you do not work with a third-party provider to provide loans to your customers and instead provide them yourself, you will see a negative cash flow impact, at least initially.
The Best Customer Finance Service Provider To Know in 2022
Amazon credit is only available on Amazon’s Website. However, it provides some exciting benefits. It offers three main promotional periods with 6, 12, and 24-month options with different purchase requirements.
Customers are also eligible for cashback when they use the Amazon Credit Line to make qualifying purchases. You can get a 0% annual interest rate if you complete the purchase within the financing promotion period.
Amazon Credit also has no annual fees and does not hold customers accountable for fraud.
In addition to all these great perks and benefits, customers may also be eligible to receive a $40 Amazon gift card if they qualify for an Amazon Credit funding offer.
PayPal Credit is one of the hottest customer finance companies. They partner with several well-known retailers. A PayPal balance allows the buyer to shop on marketplaces such as eBay, Best Buy, Target, and others.
Eligible customers initially receive a unique conditional line of credit. In most cases, paying off a large purchase takes six months with no interest for the customer. Purchases must be at least $99 to get considered.
PayPal Credit is a line of credit built into your PayPal account. You can use your linked bank account and PayPal balance to make monthly payments. And with no upfront penalties, you can withdraw your entire PayPal balance at any time.
PayPal Credit does not offer credit cards.
Additional credit line bonuses may be available depending on the merchant. Still, the overall flexibility that PayPal Credit offers is one of the reasons why it has a trustworthy reputation with these online merchants.
One of the most popular PayPal credit merchants is eBay, especially given the longstanding partnership between the two well-known brands.
Afterpay is a prevalent customer financing option with an outstanding reputation among buyers and retailers.
Customer lending platform Afterpay is very popular with online clothing retailers. It provides excellent opportunities when making bulk purchases from eligible retailers. You can simply select the “Pay Later” checkout option to receive an instant eligibility notification.
Customers can split larger purchases into separate monthly payments at no additional interest. They may be entitled to reschedule their monthly payments several times a year. Late charges apply only to customers who do not pay their monthly bills on time.
ViaBill is another popular consumer finance solution available to eligible Website shoppers. The platform helps customers split large purchases into four equal monthly payments. ViaBill integrates with over 5,000 retailers and regularly expands to new channels. You will not pay any additional interest on your purchase if you pay each of the four monthly installments on time.
You can also rest easy knowing that ViaBill protects all your personal information using secure servers.
This platform is for consumers who want to pay for their purchases later. Customers can choose their preferred payment date without late fees or additional penalties.
Affirm funding process is straightforward. You can select your platform at checkout at eligible retailers to instantly determine your eligibility. You will receive a stipulated monthly fee for your purchase if you meet the conditions.
FinanceIt is a powerful customer finance platform. Instead of paying high initial costs, you can significantly reduce acquisition costs and pay for large purchases over a while.
The interest rate for purchased credit depends on your credit history. Promotional offers pop up occasionally, but they don’t seem as generous as other platforms we’ve seen.
Once your application is complete, you will receive a notification of admission immediately.