#What Must Be Considered When Offering Small Business Consumer Financing?

Table of Contents

What Must Be Considered When Offering Small Business Consumer Financing?

What is customer financing?

Customer financing plan allows consumers to buy products or services from a company without completing the payment for it in full at time of buying. For example, if you’ve bought a new laptop that you paid for on a payment plan, the particular you purchased the laptop from has customer financing.

That means if a particular product is expensive for a customer, but he needs it, he doesn’t have to wait to get the product, if he applies for a payment plan.

● How suitable would it be for your target customers?

The first thing you need to check when offering customer financing for your small business is whether it is suitable for the products or not.

So, you probably want to provide customer financing to your customers if it would be difficult for them to buy your products and services without an alternative payment plan because of high cost.

● How can you get approval from a consumer financing company?

If you want to participate in a payment plan, your customers need to apply for financing with the consumer financing company you want to work with. Usually, customers will require a decent credit rating to get qualified for financing.

You should always check the credit demands of different consumer financing companies, and then detect whether your target customers would qualify for financing or not.

● The cost of consumer financing :

One thing you should keep in mind is that you should only offer customer financing for your small business when it is affordable for both you and your customers. The cost of starting a customer financing plan to the merchant varies depending on which consumer financing company you work for.

Few companies charge zero money for the merchant. Others might charge you a flat monthly rate, usually from $45 to $60 per month.

The cost to your consumer who is using this customer financing program, usually lowers to the amount of each installment and the interest. So, you need to be careful that customer financing plans with high-interest rates can cause an undue financial load on your customers.

● Setting Up A Customer Financing Option :

As a merchant, there should not be a lot of trouble setting up a customer financing option. On top of that, it should also be less of a burden for your customers to apply for customer financing, and sign up for a payment plan.

In addition, there are a lot of financing companies, from Blisplay to PayPal Credit, that let customers pay for something in installment with a few clicks on their phone.

Customer Financing for Small Business:

When it comes to customer financing, there are some advantages along with some disadvantages to be faced for. Let’s have a look.

Pros of Customer Financing :

As we mentioned earlier, there are a lot of different studies that say if customers are offered financing, it will be at the end of the day beneficial for merchants. Therefore, let’s have a look at some of the top advantages of customer financing for small businesses.

1. Increase Sales :

At the end of the day, and as we mentioned earlier, the main aim of customer financing is to boost your sales by converting more browsers into buyers. You can just simply offer a payment plan on all the expensive and demanding products. By doing that, you are making it possible for the customers who might have liked a particular product, but could not buy it due to the high cost. Therefore, by helping your customers to make purchases of more expensive items, you’re increasing the sales of your company.

2. Attract a lot of Customers :

By starting a consumer financing program, you’re not only increasing your sales, but attracting more customers towards your business. Moreover, the same customer might also come back to your store to buy another expensive item, since they already know that you will again offer them the same payment plan.

Cons of Customer Financing :

Even having all benefits, customer financing might not be suitable for every small business, especially when you do not want to work with a third-party provider.

So, the disadvantages include :

1. Capacity for Bad Debts :

It will always be a best practice to do a deep credit check before financing a customer. But, even if you do so, you can never really detect how dedicated they are with their finances, or what kind of financial problems they may run into that would cut them off from honoring the debt agreement they made.

2. Extra Accounts Receivable

If you are planning to offer customer financing yourself, there is a chance that you may save money since the hiring cost of an outside company will not be included. However, you do have to estimate the cost of the size of your accounts receivable department, which has increased. Whether you are hiring another employee, or you need to engage on your own to further execute on financing payments, taking on consumer financing yourself will add extra expenses.

Final thoughts :

It will ultimately be a win-win situation for a lot of small businesses if they offer a consumer financing plan to their customers. Currently, there are a total of 33.2 million small businesses, accounting for 99.9% of all private establishments. You will not only get more sales but also your customers will be able to buy the product or service they want. Therefore, if you are thinking of testing customer financing for your business, you need to find a financing program that will fit your future plans, and your customer base.

Author Bio:

Allison Janney is a Sales & Marketing Manager at ChargeAfter. She would like to share content on Finance Industry like Point of Sales financing, Buy now Pay later, consumer financing & Ecommerce financing for valuable reader.

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