Consumer financing allows your customers to purchase your products on credit. Then, they make payments on these purchases. However, you receive the full amount of the purchase price from the finance company. There are several benefits to offering customer financing, but these are ways to help you get the most out of this strategy.
Analyze Your Business
Consumer financing is not right for every business. Most of these finance strategies target prospective customers. Their goal is conversion. Initially, this benefit was used for high-dollar items, such as vehicles, jewelry and electronics. However, many of today’s companies offer some type of financing.
PayPal conducted a study that found a 56% increase in average order size when a company discussed financing options in its advertising. In addition, businesses experience increases in conversion rates and loyalty when credit is offered. However, you should do your due diligence and see whether this option is right for your company and customers.
Research Working With Third-Party Platforms
If you provide the financing in-house, you only receive a portion of your sales at the time of purchase. You then have to invoice and collect the remaining money from them over time. This can affect your profit margins as well as your ability to invest in inventory and pay company bills.
When you work with a third-party platform, your customers are able to make payments on their purchases, large or small, and you still receive the full amount of the sale. You may have to pay a transaction fee, similar to a credit card processing fee, but the rest of the sale is yours. The third-party is responsible for collecting the rest of the money from your customers. They earn additional income through charging interest.
However, third-party platforms can later bill you for nonpaying customer debts. They can also stop providing financial services to your customers if they find that a significant portion does not make their payments.
Review Your Customer Experience
It typically only takes a few minutes for customers to be approved for financing. They can usually use their credit on their first purchase as well. They may even be eligible for different repayment plans, and their interest rates may be lower initially.
Your concern should be whether you think your customers will qualify for financing, if they will use it, what it costs them and how much they will be required to spend.
Consumer financing may be a significant benefit to your company, but do your research and find out how it will impact your business and customers.