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calendar    Aug 21, 2020

How to Offer Customer Financing: A Comprehensive Guide

In business-to-business transactions, a lot of cash changes hands. Even if a business purchases a single unit, that asset could have a price tag that reads like a phone number. For these reasons, some businesses won’t have the finances to pay upfront.

Naturally, most businesses will offer financing as one of the payment options. With consumer financing activated, even small businesses can afford goods or services well beyond their current means. Keep reading to find the best ways to offer customer financing.

What is customer financing?

Sometimes referred to as consumer financing, a merchant allows customers to use a customer financing solution to pay for goods or services in installments. The customer will then make monthly payments to the financing firm until they settle the debt in full. Otherwise, they will face a late fees charge if they fail to pay in time.

A business owner offering customer financing can either do it in-house or collaborate with a third-party financing company. These buy now, pay later (BNPL) schemes have such massive potential that a Yahoo! Finance report expects them to grow 10-15 times by the year 2025. The customer gets what they need, and the merchant gets to close the sale; it’s a win-win for all parties.

Power up your net terms in 9 steps

Why offer payment plans or consumer financing?

  • Increase sales: when your customers learn they don’t have to pay for items upfront, they will tend to purchase more goods from your store, improving your customer conversion rate and strengthening brand and customer loyalty.
  • Instant payments: although the customers will make payments in installments, you will get payments instantly if you opt for consumer financing form a third party financing partner since the lender will send you the total purchase price when the customer buys the goods.
  • Higher orders: customers will likely purchase more goods or services than they typically do if you extend consumer credit facilities to them. Consumer financing empowers purchasers to buy all they want rather than what they can afford at that particular time. According to FuturePay, 56% of online shoppers are likely to make a big purchase if they have financing offers.
  • It makes you competitive: consumer financing differentiates you from the competitors with no credit offers. It elevates you to the same playing field as the big hitters who offer customer financing solutions.

How to offer customer financing

1. Is that consumer financing solution the right fit for your business?

There are multitudes of customer finance software in the market–not all of them will be what the doctor prescribed for your business. While any solution might do for you as a retailer since all you need is a financing platform, the customers’ needs are entirely different.

Not all customer financiers are created equal. Most point-of-sale financing companies offer installment payment plans on a buy now, pay later basis, without fees or interest rates. Some financing platforms give the customer several repayment plan options, with some displaying the loan terms, minimum qualifications, and monthly repayments.

During the application process, some customer financing programs approve the financing request immediately but others rely on a soft credit score. The rest will do a complete credit check to confirm a customer’s creditworthiness, which can take some time.

Just because your provider offers most of these does not mean it will be a good fit for your business. According to a Citizens Bank survey reported on Business Wire, 76% of Americans want a seamless and straightforward payment plan at the point of sale.

Whether it’s an in-house or customer financing third party, the goal is to include a solution where most of your customers will qualify and get reasonable interest rates and processing fees. The same extends to the minimum spending requirements.

The survey also points out that 62% of the people who took the survey prefer clear payment terms through fixed monthly plans, with the integrity of the financing provider playing a big part in considering when to make a big purchase.

2. Implementation

Like any other form of financing, customer financing will require you to conduct credit checks, financing options and collect the payments. If you go the in-house route, you have to do all those tasks yourself as well as safely store consumers’ confidential information.

To succeed in the implementation step, verify that the financing platform works seamlessly with your eCommerce platform. Ensure it’s simple for customers to use and it doesn’t interfere with the checkout process. If it’s a third-party offering, make certain that it does not need intensive staff training.

In addition, establish that the financing platform has few limitations as to purchasing minimums, and offer scalability as the business grows. Finally, the financing platform should be installable across multiple sales channels. For instance, the financing options should appear in product listings, not just at the checkout process.

Additionally, an excellent financing platform should integrate with the leading eCommerce and POS platforms in case you need to migrate to a different platform. That way, you don’t need a radical redesign of your website, and all your sales data will be safely stored on one site.

3. Alert your target audience

All that work will be in vain if your customers are unaware of the customer financing options at their disposal. Educate your target audience on what they qualify for by advertising on your website and across your social media handles.

Even those who are not brand loyalists will be attracted to the customer financing offerings with the right marketing strategy. Incorporate SEO marketing skills to give the marketing campaign a boost in search engine results.

Your brick-and-mortar store should prominently display ads promoting the financing and train staff to inform customers on the same. For the online store, display the financing options alongside standard product prices and at the checkout page.

Papers with title payment plan. Business concept.

Options for online businesses to offer payment plans

There are two main ways for businesses to offer consumer financing services:

a. In-house financing

In this type of financing, the retailer assumes all the risks of financing the purchase. You will be in charge of conducting credit checks, offering finance, and chasing after payments. It works best for businesses that operate on tight profit margins and have good cash flow.

One of the big cons of in-house financing is reduced cash flow. As much as you are hitting sales targets, you will run out of stock because no one is paying cash. Moreover, you will still have to contend with urgent bills, such as payroll and electricity, yet have enough left over for restocking.

In addition, you will have to set aside time to go chasing after payments from customers. Therefore, you have to spend more to beef up your accounts receivable team.

Resolve’s API integrates with your financial tech stack to minimize these headaches, offering seamless integration with your workflow. That way, your customers can apply for net terms during checkout without having to leave your platform.

The Resolve suite allows you to sync the invoices that you wish to provide net terms, and it conducts credit checks to inform you of the deserving customers to help reduce the risks of bad debts.

Additionally, Resolve offers net term management. They can be your credit team on tap, conducting smart credit card checks, and taking charge of the payments and collections push.

b. Third-party credit line providers

Instead of taking in all the risks and employing more staff in your accounts receivables team, you can outsource the tasks to a third-party customer financer. They will install a credit finance platform and take care of all the operations in return for a share of the purchase price.

You can even choose a provider that provides debt collection or customer financing operations only to reduce costs. While third-party lenders are generally great, they are at liberty to terminate the contract whenever they feel like it, exposing you to unplanned financial risks.

The overall risk with consumer financing is that you run the risk of acquiring bad debt. Whichever option you choose, the reality is not all customers will pay off that debt. If you operate on tight profit margins, like some small business owners, this can hurt your bottom line.

If you need a reliable third-party provider, Resolve offers a comprehensive invoice factoring/accounts receivables solution. They will run the credit assessment, streamline invoicing, take care of collection duties, and follow up payments to completion. While this is ongoing, their smart credit decisions will inform you of the approved total credit line, offering up to 90% in terms of the invoice advance rate.

Final words

Consumer financing has revolutionized how B2B companies trade with each other as customers can pay for goods or services in easy monthly installments. Purchasing companies are no longer limited to purchasing only with cash at hand.

The best way to achieve this is to choose a simple customer financing solution that seamlessly works across your eCommerce platforms. The financing platform should offer clear repayment plans, with reasonable interest rates and repayment fees, without choking qualifying limitations that lock out most of your customers.

Once that’s in place, advertise or place the consumer financing options in prominent places so your target audience can find them easily. You can offer consumer financing in-house or partner with a third-party financing company. Contact customer service today for a demo of how Resolve can help you manage net terms, conduct credit checks, or provide consumer financing solutions.

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