As a business owner, maximizing sales is always a top priority. Businesses have found that offering financing to customers has made it easier for them to reach this goal. A recent study shows that the average size of purchase increased by 15% when companies offered financing to customers at the point-of-purchase.
Continue reading to learn how to offer financing to your customers and what to consider before doing so.
Customer financing is when a business offers financing as a payment option to their customers, either on behalf of the business itself or through a third-party financing company. Rather than a customer paying for the total cost of their purchase at the point-of-purchase, customer financing options allow the customer to pay for their items in a series of affordable installments, plus an interest rate based on the total financed amount. So, if a customer chooses to finance their payment, they will be able to take their purchase home immediately while paying for the total cost over a longer period of time.
There are two ways that your business can offer financing to customers:
Although the customer’s experience is relatively similar through both methods, the major difference is the amount of time and resources needed within your business. If you choose to offer financing to customers through an in-house service, you are taking on the risk of financing a customer directly, management of the payment collection, as well as reducing initial revenue earned for that purchase. In comparison, if your business chooses to use a third-party financing service, they would manage the vetting, approval, and payment collections. You would also receive the full amount of the financed item in your merchant account, typically within one week after the customer makes the purchase. Your business would primarily be responsible for selecting which third-party service to integrate into your sales and checkout experience.
When offering customers financing, the customer experience should be relatively straightforward:
Before you decide to offer financing to customers, you should carefully consider and be aware of a few elements involved in the process.
If your company sells big-ticket items like furniture, equipment, appliances, etc. offering customer financing may be more beneficial for your business. Due to the higher price tag of these types of items, some customers may need help completing their purchase. Customer financing would increase their purchasing power, leading to more sales. A study conducted by comScore Research found that 25% of customers who used a financing option said they would not have made the purchase at all if they didn’t have a financing option. If your business sells items with relatively low-price tags, however, it is less likely that customers will need financing options to complete their purchase.
Ultimately, offering financing to customers can be a win-win situation for both your business and your customers. While you can increase your average purchase size and sales volume, customers can purchase more of the products and services they need.