Consumer Financing is emerging as a lucrative option for businesses to make their product or services more affordable. At the same time, it promotes customer loyalty while increasing sales and customer base. Most importantly, it increases the average order value, which makes it entirely worth your serious consideration!
Everyone, from small businesses to enterprises, is looking for ways to incorporate it into their offerings. However, offering financing options to your clients takes quite a bit of commitment. Hence, before you hop on board, here are a few things to bear in mind:
Find a Suitable Financing Model
Different businesses call for different financing models.
For example, when you look for how to offer furniture consumer financing? You may come across in-store financing, layaways, rent-to-own, credit card payments, and personals loans. The same may not apply to a different industry, such as real estate.
Hence, you need to start by identifying a suitable financing model that serves your business’ purpose and meets the client’s requirements. You could opt for fixed-term financing (also known as installment credit) or offer revolving credit. Eventually, the choice depends on your customer’s budget, flexibility, and cash flow.
The purpose of the financing model is to bridge the gap between the client and your product or service. Hence, keep the problem at the focus and devise a suitable solution accordingly.
Customer Profile
Just because you are making your product or service affordable does not mean that you will grant the financing option to anyone that stumbles upon your store! Whether you are offering in-store financing or through a third-party lender, your customer must satisfy a few essential prerequisites to qualify for the service.
Typically, financial institutes accept the individual’s credit score as a history of their spending patterns. Anyone with a score lesser than 650 and adverse reports of foreclosure or bankruptcy must immediately become ineligible for the service.
Offering financing or loan facilities to unfit individuals will only add to their bad debt. Hence, formulate a reasonable customer profile to minimize the risks involved.
Product Cost and Specifics
First and foremost, you need to review whether your product or service requires financing in the first place! For instance, if you sell items that typically do not exceed 100-200 USD, the financing facility will naturally remain underutilized! Businesses that deal in high capital transactions must get serious about product financing.
Similarly, some financial bodies have regulations on the products or items against which they offer financing. Likewise, customers may also have to meet a minimum spending requirement to be eligible for financing. Hence, check out all the terms and conditions before offering it as a service.
Cost Implications to Offer Customer Financing
Depending on your financing partner, you may have to pay transaction fees or run promos for your customers. Typically, financing companies follow a no-charge, discounted rate, and flat-rate system to charge merchants.
Therefore, consider the ROI and cost vs. income ratio to determine whether the program is suitable for your business. Naturally, if the facility is eating into your profit margins without offering anything in return, then it is not worth your time and money.
Financing Costs Borne by the Customers
One of the primary considerations to bear in mind is whether your customers opt for the financing or otherwise!
Ultimately, extending this service is all about pleasing your customers and meeting them half-way through a fair compromise. Hence, your primary concern should be about making the financing plan affordable and flexible.
Naturally, customers will be inclined to choose the payment option that appeals to them financially. Even though the financing company takes care of the upfront capital, the customer has to pay the installments and subsequent interest, if any. Hence, you will continue to remain at the forefront of your customer’s minds.
Therefore, locate a lender that offers lower annual percentage rates (APRs) as it will highlight your business in a good light. Some financing companies may even offer 0% interest for six months or one year. Such an adjustment will build customer loyalty and encourage repeat buyers.
Flexibility in Financing Program
Typically, financing programs are limited to a particular brand store or a website. Naturally, the restriction would make sense, considering that you would want to contain your customer to your services rather than choosing your competitor.
However, what if the financing facility extends to your sister store/website? Now the customer has the option to finance their purchases from your store as well as the other store! As a result, the flexibility present in this arrangement acts as an excellent strategy for offering services that are neither tied down nor limited.
Offering your financing services at your store that doubles as a payment option for stores where credit cards are accepted can increase the net worth and value of the service. It can be a bonus if you can incentivize the usage of the financing program.
Scalability and Implementation
Generally, small businesses often require a custom financing solution that is quick to implement and does not call for extensive training and onboarding. This requirement primarily stems from the fact that they do not have the resources or the downtime to afford any disruption in business continuation.
At the same time, they also want the financing solution to last a good long while as the business grows. This fact is even more true when enterprises have spent the time and effort acclimatizing to the financing model. Hence, the financing tool must promise growth potential that promotes your business’ growth while also adapting to the changes.
Choose a Reliable Financing Firm
Finally, you need to select a financing company that will stick with you in all your business endeavors. You must look for a financing firm that:
- Does not stipulate any minimum sales requirement
- Does not take a commission more significant than 5% from every financed transaction
- Follows a simple registration and authentication process with a rigorous approval system
- Does not call for long-term contracts or commitment
- Mitigates risk to revenue
Final Thoughts
Financing may help you meet your customer’s needs without compromising your business requirements. However, it needs to be a well-thought-out decision after assessing your entire business structure and payment models. Once you are successful in aligning your customer expectations with financing and delivery, your business is set to boom!
