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How to Offer Customer Financing: A Comprehensive Guide

In the world of business-to-business transactions, cash flow is crucial. Sometimes, even a single purchase can have a hefty price tag that's difficult for businesses to afford upfront. That's where customer financing comes in. By...

In the world of business-to-business transactions, cash flow is crucial. Sometimes, even a single purchase can have a hefty price tag that's difficult for businesses to afford upfront. That's where customer financing comes in. By offering financing options, businesses can allow their customers to pay for goods and services in convenient installments. This not only benefits the customers but also helps businesses increase sales and improve customer loyalty. In this comprehensive guide, we'll explore the reasons why offering customer financing is essential and provide you with practical tips on how to implement it effectively.

What is Customer Financing?

Customer financing, also known as consumer financing, allows customers to use a financing solution to pay for goods or services in installments. The customer makes monthly payments to a financing firm until the debt is fully settled. Customer financing can be offered either in-house or through collaboration with a third-party financing company. The popularity of buy now, pay later (BNPL) schemes is on the rise, with experts predicting a 10-15 times growth by 2025. It's a win-win situation for both the customers and the merchants.

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Why Offer Payment Plans or Consumer Financing?

There are several compelling reasons why businesses should consider offering payment plans or customer financing:

  • Increase sales: By offering customer financing, businesses can attract more customers and encourage them to make larger purchases. This leads to improved conversion rates, strengthened brand loyalty, and increased sales.
  • Instant payments: While customers make payments in installments, businesses can receive instant payment for the total purchase price from third-party financing partners.
  • Higher orders: Customer financing empowers buyers to purchase more than they typically could afford at a given time. Studies have shown that 56% of online shoppers are more likely to make a big purchase if financing options are available.
  • Competitive edge: Offering customer financing sets businesses apart from competitors who don't provide such options. It puts them on the same playing field as bigger players in the industry.

How to Offer Customer Financing

Now that you understand the benefits of customer financing, let's explore how to offer it effectively:

1. Is that Consumer Financing Solution the Right Fit for Your Business?

Not all customer financing solutions are created equal. It's essential to choose a solution that meets the needs of both your business and your customers. Look for a financing platform that offers installment payment plans without excessive fees or interest rates. Consider the financing provider's approval process, repayment plan options, and minimum qualifications. Ensure that most of your customers will qualify and receive reasonable interest rates and processing fees. Transparency in payment terms is also crucial, as 62% of consumers prefer clear payment terms through fixed monthly plans.

2. Implementation

Implementing customer financing requires conducting credit checks, managing financing options, and collecting payments. If you opt for in-house financing, be prepared to handle these tasks yourself and securely store customer information. Ensure that the financing platform seamlessly integrates with your eCommerce platform and is user-friendly for customers. If you choose a third-party financing solution, make sure it doesn't require extensive staff training. Scalability and compatibility across multiple sales channels are also essential considerations.

3. Alert Your Target Audience

Offering customer financing won't be effective if your target audience is unaware of the options available to them. Create a comprehensive marketing strategy to educate customers about the financing options you offer. Incorporate SEO marketing techniques to improve your visibility in search engine results. Prominently display financing ads on your website and social media platforms. Train your staff to inform customers about financing options in physical stores, and display the options alongside product prices and at the checkout page online.

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Options for Online Businesses to Offer Payment Plans

There are two main ways for online businesses to offer customer financing:

a. In-house financing

With in-house financing, the retailer assumes the risks and responsibilities of financing the purchase. This option is suitable for businesses with tight profit margins and sufficient cash flow. However, it can impact cash flow and require additional resources to manage credit checks and collect payments. Consider integrating a reliable API, such as the one offered by Resolve, to simplify the financing process and minimize risks.

b. Third-party credit line providers

Outsourcing financing tasks to third-party providers is another option. These providers handle credit finance operations, including credit checks, invoicing, and collection duties. Choosing a provider that specializes in debt collection or customer financing operations can help reduce costs. However, be aware that third-party lenders can terminate the contract at their discretion, exposing your business to unplanned financial risks.

Remember, regardless of the option you choose, there is always a risk of bad debt with customer financing. It's crucial to evaluate the potential impact on your bottom line and carefully select a reliable third-party provider if necessary.

Final Words

Offering customer financing has become essential in the world of B2B transactions. By providing easy monthly installments, businesses can expand their customer base and increase sales. To successfully implement customer financing, choose a user-friendly financing solution that aligns with your business needs and customer expectations. Advertise the financing options prominently and educate your target audience about their eligibility. Whether you decide to offer in-house financing or collaborate with a third-party provider, it's important to choose a reliable partner that can help you navigate the complexities of customer financing.

Contact Resolve today to learn more about their comprehensive invoice factoring and accounts receivables solutions, which can streamline your credit assessment, invoicing, and collection processes while offering reliable customer financing options.