Factors To Consider When Offering Consumer Financing

Factors To Consider When Offering Consumer Financing

If you are like most business owners, you are consistently looking for ways to expand your business and increase your revenue. One option you may not have considered is consumer financing. In this case, your customers can purchase their products on credit, so they enjoy them now and pay for them over time. However, before you offer financing, consider these factors.

Is It Scalable?

Your growth strategies should be scalable, so they are just as effective when you are small as when you are large. In addition, they should apply across all your platforms. This is especially true with customer financing. You need to offer financing in your brick-and-mortar locations as well as your mobile apps, website and any other events you hold. In addition, the plan should expand with your business so that you can offer new customers financing as well.

Is Implementation Complicated?

As with any new strategy, your implementation needs to be smooth and successful. This may require that your financier offer tools to help you get your customer financing program started and going well. You probably want to avoid having to provide extensive employee training. However, you want the process to be easy for your customers as well. In fact, they aren’t going to like a lengthy process when they apply for their credit because it will increase their checkout time. This can also be frustrating for those behind them in line in brick-and-mortar locations.

If you offer financing in-house, your accounts receivables will become more complicated. However, using a third-party financing company shouldn’t increase these duties because you are paid when the purchases are made rather than over time.

What Does It Cost?

Every penny you spend on financing reduces your bottom line. This can make in-house financing attractive because you aren’t charged fees and you can collect interest on the debt. Finance companies often charge a percentage of the total bill in addition to a flat fee, such as six percent of the bill plus $0.50 per transaction.

If you finance your customers, you also won’t receive all the money upfront. Instead, it will be spread over the payment period. However, a third-party financier will give you the balance of the purchase less its fees immediately.

What Are the Risks?

In-house financing is risky. You have to have an established collections and billing process in place, and you still may not receive payment. However, financiers take most of the risk when they provide your customer credit. However, your finance company may still require you to reimburse it if customers don’t pay their bills.

As you consider your consumer financing options, do your due diligence and consider all your options.