Customer Financing Explained and How to Offer It
Instead of paying in full up once, customer financing enables small company clients to spread out the cost of a transaction. Businesses can provide funding to clients by developing an internal procedure or hiring a third party provider to do the task.
Consumer finance solutions are also available offline and online. Although most customers now apply for financing online, which has grown in popularity, there are still some products that require in-store financing. For instance, a consumer might want to examine furniture in person before making a purchase.
In addition to marketing and promotion, providing a new payment option could help you increase your company’s profits.
What is Customer Financing?
Customer financing options give your consumers the choice of a payment plan if they are unable or unwilling to pay for a good or service in full. An item might cost $500 upfront, but your consumer could pay for it over four payments of $125.
The consumer may be required to pay interest on their monthly installments through a third-party supplier, but the company usually gets paid in full at the time of purchase. Since the business normally receives the money up front and the client makes payments to a third party, the mechanics can be comparable to a credit card for both the customer and the company. Customer financing can occasionally be obtained in the form of a store card.
Retailers may also provide consumer finance under their own brands. For instance, ChargeAfter, a provider of BNPL and POS finance, provides white labeled consumer financing options. This is yet another innovation in financing because it allowed businesses to provide professional loan services without having to spend a lot of money developing new platforms. The goal here is to increase awareness of the retailer’s brand and give them the tools they need to grow their business because service providers like ChargeAfter market their services under branded names.
Offer Consumer Financing
There are numerous ways to finance consumer purchases, but there are two main types of financing that we can identify. The main distinction in this case is how the payment is divided and the payment plan is calculated.
- In-house or Direct Customer Financing, where you establish and control your own monthly payments. Direct financing offered to customers by merchants or other businesses is referred to as in-house financing. It permits customers to pay for goods and services straight from the seller.
- Third-party customer financing in which a service provider oversees the procedure for authorizing a customer for credit and monitoring monthly repayments
Direct Consumer Financing
If you’re thinking of providing direct client financing, be ready to devote time to running the operation and educating staff. How to determine whether a consumer is creditworthy is a crucial issue that you must resolve. Make sure the folks to whom you are providing financing are able to pay you back.
Additionally, there are some steps that must be taken in order to provide a simple and comfortable method of direct financing.
- Deciding on the terms you’ll use and the manner in which a customer will pay you
- Establishing a system for monitoring payments and collecting overdue payments
- Creating fresh entries to represent the outstanding debt
- Verifying that you have a procedure in place for protecting client credit information
Because you’ll need to develop your own procedure and spend time monitoring customer payments, in-house customer financing may take significantly longer than to use a third-party consumer financing provider, depending on the volume. Because some third-party customer finance firms don’t charge merchant fees, it can even be more expensive if you need to engage additional support to keep track of the unpaid invoices.
You can also provide branded versions of finance, as was already discussed. In actuality, you would be using third-party financing, but in the eyes of the consumer, you are using your own loan platform and still reaping the rewards of increasing the visibility of your business.
Third-party consumer financing
Through third-party customer financing, the job of establishing and maintaining the program is delegated to an outside provider. You give your clients the opportunity to pay using a financing option rather than doing a credit check, providing financing options, and keeping track of monthly payments.
The company frequently gets the money up front if the customer is granted permission by a third-party transaction source. Your customer will pay the provider rather than you, much as they would with a credit card. You will have to pay more money, but there will be less labor for you. As an illustration, you might pay a merchant fee that is a proportion of each transaction, albeit this price may be comparable to what you would pay to use credit cards or other payment methods.
Using third-party financing is far more convenient for some retailers. The explanation is straightforward: it is challenging to provide a comfortable platform for customers, especially when the store is new and must focus on services other than financing. Additionally, it is virtually impossible to develop a platform that can match the quality of the top lending systems. Therefore, the merchants prefer to use already well-known finance platforms and delegate the lending portion to them.
Benefits of Consumer Financing
Because of the advantages it offers, so many customers have started applying for it, and the trend is currently going strong. One of the key benefits is that the store may grant it to anyone, including customers with no credit history or credit cards.
Additionally, customers can easily acquire more and more expensive things. It has advantages for both the consumer and the retailer.
Even though the customer splits the payment with the financing platform when using a financing platform provider, the retailer is still able to get the full payment at the point of sale.
Disadvantages of Consumer financing
Consumer borrowing does come with certain drawbacks. One of the biggest drawbacks for retailers is that, in the majority of cases, third parties receive fees from merchants and retailers who use the platform rather than charging interest fees to consumers.
In the case of direct financing, there might be a one-time issue because you might need to train your staff on how to properly offer financing and convert the customers.
Additionally, if you decide to use internal financing, you will need to track and collect the money and develop plans for how to use it effectively.
Leading Consumer financing providers
- PayPal = Introducing PayPal Credit as a payment option might be easy if you currently use PayPal to accept payments. It’s already included in your online checkout procedure and won’t cost you anything extra in addition to your regular transaction fees of 2.9% plus 30 cents. Banners for PayPal Credit can be added to your webpage to inform visitors that they have this option.
You will be paid in full as soon as your consumer makes a purchase and PayPal Credit approves it. If your consumer pays off a transaction of $99 or more in six months, they won’t be charged interest.
According to research by PayPal, 42% of customers of PayPal Credit would not have completed their most recent transaction if the customer financing option wasn’t available.
- ViaBill – Customers of online shops can receive interest-free customer financing up to $300 with ViaBill. Customers can divide their payments into four monthly payments using ViaBill. When a client order is processed, the first transaction is taken; the following three payments are immediately deducted.
Platforms for online stores like Shopify, Magento, WooCommerce, and PrestaShop can be integrated with ViaBill. Your customer must provide you with their phone number, email address, and debit or credit card numbers.
You will be charged a merchant fee of 2.9% + 30 cents per payment if your consumer chooses to utilize ViaBill.
- Wells Fargo – You may provide your consumers with immediate financing choices thanks to Wells Fargo customer financing. Customers who have been authorized will immediately have access to a rolling line of credit after completing a brief application process, allowing them to make more purchases from your company.
Wells Fargo offers guidance with financing setup through training. You’ll get the money in your account after a customer completes a purchase utilizing Wells Fargo financing, usually within 48 hours.
- Financeit – Financeit provides credit limitations of up to $100,000 in case you need to provide customers with financing for larger items. Using a payment calculator in-store or online website tools, you may customize a quote to present your client monthly payment alternatives that meet their budget.
Customers can choose from a number of payment plans offered by Financeit, including ones with deferred interest, deferred payments, or alternative interest rates.
Once a customer decides to use this funding sources, you or the customer will fill out a credit application. The entire purchase price will be transferred into the company’s bank account once all paperwork has been electronically signed and uploaded. A merchant fee is not imposed by Financeit.
- Synchrony – Small company owners may offer clients a shop credit card thanks to Synchrony. Customers that are accepted will be given a credit card with your company’s name on it to use as payment. There is no fee for partner companies to provide this to clients.
Program credit and debit cards and term loan are also provided by Synchrony. Customers may purchase anywhere that accepts credit cards, thanks to products like Synchrony HOME and Synchrony Car Care, which are part of their program. By signing up as a partner with Synchrony HOME, your company will be able to post exclusive promotions for consumers on the Synchrony HOME webpage, and customers will be able to use their Synchrony cards in your store to make purchases for their homes.
- ChargeAfter – ChargeAfter is one of the most often used financing systems used by retailers. Due to the new capabilities that ChargeAFter provided on the platform, the platform has become incredibly popular among businesses.
The Waterfall financing system and multi-lender BNPL platform, which offer more than 85% approval rate on every application and give the customers the ability to get the most relevant financing based on their credit score and history, were the first major feature they offered.
Additionally, ChargeAfter has established itself as a leader in white label services for both banks and retailers. It enables them to offer one of the most commodious and modern financing software systems in their brand name. Additionally, the system is scalable, allowing you to provide the precise financing of your choice.
ChargeAfter is a leading multi-lender platform for Buy Now pay later (BNPL) Consumer Financing. It connects businesses with the most reliable lenders, enabling them to offer customers the greatest financing solutions. With the best system of Waterfall Financing, ChargeAfter guarantees BNPL lending to every shopper, by matching the most relevant lender to every client. Using the unique consumer financing technology, ChargeAfter provides all parties, merchants, lenders, and consumers, with the best shopping experience. Phoenix, MUFG, VISA, Bradesco, BBVA, Synchrony, PICO Partners, CITI, Propel Venture Partners, Plug and Play, and other companies worldwide are among the investors of ChargeAfter.