Consumer financing for customers of a small business is win-win
Whether you’re a startup, a small business, or a growing enterprise, you probably have customers asking for financing. And, when it comes to customer financing, those that can source it are likely to attract more new customers, make higher sales, and improve customer relationships.
We’re going to look at how to offer financing to your b2b customers, so you can take advantage of the benefits that come with the best options.
Are there 0 interest loans for businesses?
Customer financing, especially with low or 0 interest rates is very attractive to customers. We all know that many business owners are having a very hard time with their bottom line right now. If you can offer a financing solution so they can get the products and services they need now and pay later, you encourage customer loyalty.
There are two main types of financing: primary financing and third-party financing. With primary financing, the business takes on the role of a lender and offers its own customer financing options. This would apply to any customer who can’t (or doesn’t want to) make full payment upfront—it's not just for small business owners.
Some businesses that offer this in house financing will conduct credit checks on their customers to determine their creditworthiness before offering terms for their own financing. Others make credit decisions by gut feeling, past experience with the customer, or the recommendations of their salesperson when deciding how much financing to offer, and what the payment options will be.
The business will have to pay for the costs of the credit investigations and handle the collection of payments. Some will also use accounting software like QuickBooks Online where they can access automated invoices and payment reminders. But this all needs to be managed by an employee in accounting or a bookkeeper.
The other type of financing is third-party financing. This used to be popular only with businesses that couldn’t offer primary financing to their customers. However, the ease of use of many third party financing options as well as the reduced risks for repayment have made this a much more popular option for businesses of all sizes.
Third-party financing providers take the place of the lender. They conduct the credit check on the customer, determine terms or a payment plan, and process the payments before passing the funds on to the seller. In the process, they keep a fee—either a percentage of the total sale or a monthly flat rate.
If the customer doesn’t pay, most businesses will have to take the hit and repay the lender. However, there are some cases where businesses can access non-recourse coverage for a higher fee.
Who offers third-party financing options?
Some of the more well-known third-party financing providers include PayPal credit (probably the best-known), Affirm, AfterPay, Klarna, Fundbox Pay, QuickBooks, Transpay, TradeGecko, and Quadpay. Most will offer your customers an interest-free payment option.
It's important to separate companies offering customer financing at point of sale (pos) to individuals from companies offering financing for your business customers. The former won't be suitable for B2B transactions and include companies like ViaBill, Afterpay, and Affirm.
Another third-party financing solution for B2B transactions is Resolve. Using a very user-friendly platform, Resolve offers financing as net terms while providing complete credit management services for all B2B businesses. This means that your customers will feel like they’re always dealing exclusively with your business as their financer.
With Resolve, credit checks are discreet and quick (often in minutes), you receive reliable recommendations on how much credit to extend to each customer, and you’ll receive payment of up to 90% of the total invoice within one day. So, your customers have 30, 60, or 90 days to pay, but your bank account and purchasing power remain strong.
Advantages of using a financing company
Let’s look at the good news first. When you offer your customer a financing option, it’s likely you’ll see larger order values, less accounting demands, and close more sales.
Larger order values are almost a given with financing. When a customer knows they have 30, 60, or even 90 days to pay their invoice, they can confidently increase their order size and have more products to offer their customers.
Using a third-party financing company means giving a lot of your accounts receivable demands over to the company—at least, the accounts that go through financing. Once the application process is complete for the customer, the financer will take care of managing the account and following up with your customer in the case of nonpayment.
And, with the buy now pay later option that financing offers, you’ll increase sales. With the ongoing challenges of the pandemic, staffing challenges, and an uncertain economy, many B2B customers simply can’t offer full payment at the point of sale. Financing makes purchases—especially big ticket purchases—easier for any company to manage.
Disadvantages of customer financing programs
Unfortunately, it’s not all sunshine and rainbows when it comes to third-party financing. There is a cost involved. Depending on the company you use, this will either be a monthly fee or a percentage will come off each invoice you finance.
Some finance companies have a minimum transaction requirement. If this is the case, you may not be able to offer customers with smaller orders a financing option. And, if your business is seasonal, you may not reach minimum requirements during the off season.
If your margins are very small, financing may eliminate any profit. You’ll need to look very closely at all the fees involved to be certain that you can still make a profit after financing. If a financing company has an overwhelming amount of small print, or the fees are difficult to understand, it may be best to step away before you lose money.
Finally, most third-party financers deal directly with your customer if they don’t meet their payment agreement. You have no control over how the financing company treats your customer. There are cases where aggressive collections have tarnished a company’s reputation—and even caused loss of future business. It’s a good idea to read some of the reviews about a company before proceeding. It’s likely that if they’re an aggressive collector, their customers are going to report it.
One company that does things differently is Resolve. We’ve already talked about their discreet credit checks, which eliminate the need for your customer to provide any information to the company. (The ‘old school’ method of credit checks, which most other companies still use, can take weeks, and require extensive information sharing from your potential customer.)
But Resolve also offers payment options through a financing platform that’s branded for your company. Throughout the process, your customers are dealing directly with you. There’s no interference, and the payment options are very user-friendly.
How to use financing options to grow your business
Unless a potential or new customer is very upfront with you, there’s no way of knowing if they’d prefer to finance their purchase or pay in full. So, it certainly is to your advantage to let them know they can access financing, along with other payment options like a bank transfer or credit card payment at checkout. House financing may also be an option you can offer, along with monthly payment options.
It’s helpful to set up an agreement with a finance company in advance, so you can quickly initiate the credit-checking process for your new customers. Like we mentioned, Resolve can complete this part of the sales process very quickly, but other financing companies may take days or even weeks.
Let your customer know what to expect and be sure to highlight the advantages of having their purchase financed. Even those with excellent customer credit and strong purchasing power can take advantage of net terms or a payment arrangement to improve their cash flow. And, with all the uncertainty around operating a business right now, many companies are going to choose the most conservative payment option in order to have the best preparation for the unknown.
If you’re a business that consistently sells big ticket items, large purchases, or exclusive services to other businesses, having a financing option is almost crucial. Even the most successful businesses need good payment options. And working with any government organization almost ensures you’ll need to offer net terms.
The cash flow advantage
Using third-party financing with your B2B customers can give a competitive edge. First, as we’ve mentioned, financing encourages new customers and higher sales. But, the financing companies that also pay you without needing to wait for your customer to pay you can substantially improve your cash flow.
With money in the bank, you have a stronger negotiating stance with suppliers, you can grow your business now (again, instead of waiting for big invoices to be paid), and you’re in a better financial position. It’s well worth pursuing options where your customers get financing, and you get paid promptly.