All you need to know about customer financing

Customer financing – also known as consumer financing – is a ‘buy now, pay later’ lending scheme that lets your customers purchase an item that they would otherwise be unable to buy immediately, or may not want to pay for out of available working capital

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    Chris Godfrey

    Page reviewed by, Chris Godfrey, Expert financial copywriter, on August 25, 2023 11:00 am

    What is customer financing?

    Customer financing allows your customers to pay for goods or services over time with regular monthly instalments, or via a lump sum paid on a pre-agreed date. Customer financing can be a win/win for both you and your buyers, as they get what they need right now without the hassle of seeking a traditional business loan, and you can sell them more goods and services at full price.

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      How to offer customer financing

      There are two ways to fund customer financing schemes: You can either fund them with your own cash, or you can utilise the services and funds of an external lender. However, regardless of how you fund these transactions, your customers will usually undergo a standard credit check as part of the application process. This helps to ensure they can repay the loan on time. 

      Is it worth offering customer financing?

      Customer financing could provide a major boost to your sales, but if you’re funding the scheme yourself you will need to carry out credit checks, collect payments and chase any customer who defaults. This means customer financing may not be a fit for every type of business or their customers. Before offering this kind of financial service, you should consider these important points:

      Who qualifies for customer financing?

      Not all third-party lenders will provide funding to all customers. Some funders may reject start-ups and young businesses, while others may only provide loans to customers with a strong credit rating and frequent buying history.

      What should be the minimum amount customers must spend?

      Some lenders may set a minimum spend limit that is too high for many of your customers. Finding a lender who can work with the financial profile of your customers is essential. 

      Will the financing actually be used by your customers?

      It depends on your average customer. Are they cash rich and do not need financing, or is poor cashflow a common problem that makes financing an attractive option for them? Ultimately, there’s no point in offering a financial service that your customers won’t use.

      How much does it cost your customers to use finance?

      A financial service that charges interest at competitive rates – comparable to many other types of business funding – can be a powerful tool to boost sales.

      Deciding what kind of financing to offer

      You can either fund your customer financing scheme yourself, or you can work with an external lender. If you choose to self-fund you should consider these requirements:

      • Operation: Customer financing schemes must be easy to set up and simple for your workforce and customers to use and understand.
      • Sales growth: Customer financing should support sales growth across both your physical stores and online.
      • Cost: An external lender will charge commission on every transaction they finance, which can impact your profitability. However, if you are self-funding, not only will your cashflow initially dip as you must wait longer to get paid, but you will be using working capital to support customer loans when it may be better to use that cash elsewhere in your business.
      • Risk: ‘Buy now pay later’ schemes always carry some risk, but if you are self-funding, the risk for you is higher.
      • Flexibility: Some external lenders may restrict what goods and services can be financed. 

      How to choose a financing provider

      Finding the right financing provider is critical to success. Businesses who are seeking external funding support should review all available options before selecting a provider. This means looking for a lender:

      • Who can work with your customer base.
      • Has a minimum spending limit that fits your sales profiles.
      • Charges competitive interest rates and fees.
      • Will finance all or most of the goods and services you sell.

      Top tip: Finding a lender who fits this complex mix may be difficult without the support of a broker who has deep knowledge of the customer financing sector.

      What are the benefits of customer financing?

      Customer financing can be good news for you and your customers:

      Accessibility of products

      With finance on tap, your customers can consider products and services that may have been out of reach before. Top brand names and high-end equipment are suddenly more accessible. 

      Ability to sell high-value items

      When customers can pay over time, you can sell them more high-value goods and services more often – as well as any maintenance or insurance packages that may come with the deal. 

      Get started with Swoop

      Customer finance is a specialist financial area, with every lender having their own criteria and differing rules of application. SMEs seeking this type of funding may find themselves forever searching and making applications to lender after lender. Instead, working with a broker, who can access customer finance support from a wide range of lenders is a better way to go. No more cold calls and endless demands for information, simply tell us what you need and leave the rest to us. 

      Contact Swoop to arrange customer finance at the best rates and on the best terms. Give your customers the opportunity to buy much more of what you sell. 

      Written by

      Chris Godfrey

      Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance.

      To read our editorial policy, please click here.

      Article sources
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      Swoop requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate.

      Business loan: https://swoopfunding.com/uk/business-loans/small-business-loans/

      Working capital loan: https://swoopfunding.com/uk/business-loans/working-capital-loans/

      Start-ups: https://swoopfunding.com/uk/business-loans/startup-loans/

      Cashflow: https://swoopfunding.com/podcasts-videos/make-cash-flow-work-for-you-swoops-experts-share-essential-tools-that-will-immediately-make-your-business-stronger/

      Other types of business loans: https://swoopfunding.com/

      Credit rating: https://swoopfunding.com/uk/business-credit-scores/how-to-check-your-business-credit-score/

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