As a business owner, your primary tasks are attracting customers and increasing revenue. You also need to have strategies in place that promote customer retention and loyalty. Consumer financing is one way to increase your revenue and convert more customers. These are some things you should know.
Consumer Financing Defined
When you offer this type of financing, you allow your customers to purchase your products and pay over time. However, because you work with a finance company, you receive the full order price, less any fees, upfront. Your customer pays the finance company interest on the borrowed funds.
Your customers benefit from this type of financing because they can afford to make the purchases they need or desire and spread the cost out over time through affordable payments. This convenience gives you multiple benefits.
First, you receive a significant increase in sales. New customer sales often increase by up to 20% while returning customer sales increase by up to 70%. This strategy also leads to higher customer loyalty and satisfaction. Not only do you earn more sales, but the actual order tends to be 15-93% larger, so each sale is worth more.
Financing also provides you with a possible competitive advantage. In addition, using a third-party financing company reduces or eliminates the risk of nonpayment and chargebacks.
Making It Work
To offer to finance to your customers, you will often work with a third party. These can be traditional lending institutions, credit card companies, or alternative financiers.
Learn about your costs. Review and negotiate your fees with any companies you are interested in working with. Read through any liability you may have if your customers do not pay their bills. You should also know about any per-transaction or monthly fees, which could reach up to 6% of the transaction total or up to $50 per month, respectively.
Financing Best Practices
Once you have decided on the financier you want to work with, advertise that you offer this option to your customers. Set up a system where they can apply for credit online or as they check out in the store. You can even provide a smartphone option. The approval process is quick, and most customers know within a few minutes whether they qualify. You can also negotiate temporary promotions for new credit customers, so they pay less or no interest for a limited period. You also need to prepare for expanded accounts receivable responsibilities.
Before you offer consumer financing, do your due diligence and find the best deal. Then, determine what strategy and company are best for your business and customers.