In order to launch and grow a successful business, you must be able to not only acquire but also maintain a customer base. For this to happen, your business must address the wants, needs, and budgets of your customers. Customer financing offers a great opportunity to not only increase your sales, but also earn customer loyalty.
What Is Customer Financing?
Customer financing allows customers to enroll into a payment plan in order to purchase any goods and services. It works like a credit card in that, instead of paying the full amount up front, customers have the opportunity to pay the total amount of their purchase with interest and/ or fees included over a specified period of time.
How Does It Work?
In order to take advantage of the customer financing option, the customer will need to apply for this financing during checkout. Once approved, your customer will be allowed to make monthly payments to the financing company. The merchant will receive the total cost of the purchase at the moment of the transaction.
Are There Any Costs Involved?
In order to secure customer financing, customers typically pay an interest fee and/or management fee. The percentage varies greatly as it depends on the finance company, its terms, the “creditworthiness” of the customer making the purchase, and a series of other factors.
There are also costs related to a business having access to this type of financing as well. Two models currently exist:
- You, as the merchant, manage the entire process from beginning to end.
- Or you can outsource all credit checks and payment collection services to a third party that is able to manage this process on your behalf.
If you take on the entire process by yourself, you would have to pay for all costs related to conducting credit checks and collecting payments. If you decide to proceed with a third-party, you will only have to pay a small fee directly to the financing company for every transaction, or a flat monthly fee to access the service.
What Are The Benefits Of Customer Financing?
There are many benefits for merchants if they decide to adopt customer financing in their business model. Here are just a few:
- A Boost In Sales:
Not having enough payment options is a sure-fire way to lose customers. By offering customer financing, you are giving them more opportunities for checking out on their own terms. Less abandoned carts mean more sales.
- Acquire Customers On The Spot
Studies have shown that the first purchase a customer makes is the most important one to accomplish. In fact, it was discovered that only between 5 to 20 percent of new customers are likely to make a purchase.
Once you acquire a customer, there is a 60 to 70 percent chance the customer will return to make another purchase. By offering customer finance, you are increasing the possibility that the customer will complete their purchase.
- Payments Are Upfront
You don’t have to worry about waiting to receive your money. The finance company pays you immediately. They simply take charge to handle the payment collection from your customer.
- Prices Are Better For The Customer
One of the barriers to completing the checkout process is the pricing of the product. When you offer to split a larger payment into several smaller ones, you simplify the decision-making process for the customer. Making the purchase more attainable and less of a financial burden.
Is Customer Financing A Fit For Your Business?
This option will be worth considering if you believe that your customers would be willing to take advantage of it. You could gauge interest by emailing a customer survey. If it seems like they would be interested, then this would be a good strategy to implement.