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NGExpert financial copywriter
Page written by Chris Godfrey. Last reviewed on September 13, 2024. Next review due October 1, 2025.
When times are tight, customers typically reduce their spending and more expensive goods and services often take a hit. But it doesn’t have to be like that. Customer financing can encourage your buyers to buy more goods and services and buy more costly items by paying in instalments instead of all at once.
Customer financing is a payment program or service that allows customers to purchase goods or services through instalment plans, rather than paying the full amount upfront. Typically offered by retailers or third-party financial institutions, customer financing can include loans, credit plans, or buy-now-pay-later options. This method makes expensive items more accessible by spreading payments over time, often with interest, though some plans may offer interest-free periods. For businesses, customer financing can boost sales, attract more buyers, and increase customer loyalty, while for customers, it provides greater flexibility in managing their cash flow and purchasing power.
Although customer financing programs are often customized by the seller, incorporating tweaks to make their service more attractive than their competitors, this type of financing falls into two broad categories:
In-house customer financing programs are provided by the seller, using their own financial resources to provide credit to their customers. This type of program gives the seller total control of every credit transaction and may allow them to make extra revenues by charging interest and fees. However, it also means the seller will need to pay for credit checks and collecting payments, which may require both software and extra staffing. They will also need to develop a credit policy and have sophisticated systems to manage their more complicated accounts receivable.
Third-party customer financing is where the seller outsources the financial aspects of their customer credit program to a financial institution (lender) who provides customers with credit on the seller’s behalf. This method is simpler for the seller, as they no longer have to conduct credit checks and stay on top of customer payments, but it will also incur costs to compensate the lender. Typically, these costs will include a small per-transaction fee – similar to those charged by credit card providers – plus a percentage of the credit sum provided (average 2.5% to 5%).
Third-party customer financing will usually offer a wider range of credit options than sellers can provide in-house. This includes store credit cards, lay-away plans, buy-now-pay-later schemes and more. A variety of credit options may give sellers the opportunity to create tailored or tiered credit schemes that can open the door to more customers and higher sales.
If customer financing could be beneficial to your business, which route do you go? In-house, or third party? Consider these important points:
Every third-party financial services provider will have their own operating criteria and unique terms and conditions. This means you’ll need to shop around before settling on a partner. You can do this by approaching lenders one by one, or you can use the services of a loan marketplace that will introduce you to a choice of credit services from a suite of lenders. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for business owners who have never partnered with a financial services provider before.
Like all financial products and programs, customer financing has advantages and disadvantages:
Pros:
Cons:
If you choose the third-party credit provider option, setting up a customer payment plan is easy, as they do all the backroom work and you only need to market the service to customers. If you choose the in-house option, you may face significant upfront investment and need additional staff to manage the credit program and provide the necessary customer service.
Ultimately, it comes down to the type of business you operate, who you customers are, your average sale size and if you have the time and resources to offer an in-house customer financing program. For businesses with low-volume, high sale price transactions, an in-house scheme may be the way to go, as the administration increases may be manageable. However, if you operate a high-volume, low to mid-size sale price type of business, partnering with a third-party provider may be the only way you can economically manage the transaction flow.
If customer financing is not a fit for your business, there may be other ways you can help your customers to buy more from you without straining their pocketbook:
Finding the best customer financing provider for your type of organization can be challenging, but working with business finance experts can make all the difference when seeking a credit partner. Contact Swoop to discuss your borrowing needs and to compare high-quality third-party financing programs from a choice of lenders. Give your customers the credit they deserve and reap the sales rewards. Register with Swoop today.
Written by
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 Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.
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At Swoop we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. Our goal is simple – to distill complex topics, unravel jargon, offer transparent and impartial information, and empower businesses to make smart financial decisions with confidence.
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