What You Should Know About Consumer Financing
You have started a business and experienced some growth. You may have gotten to know your target market better, gaining a clearer understanding of what they need and want and how much they will pay to get it. Now, you may be looking for the next strategy to increase your sales and gain new customers. One way many businesses are increasing their revenues is through offering consumer financing. These are the things you should know about this payment option.
What Consumer Financing Is
Customer financing is a program that allows your customers to purchase their goods now and pay for them over time. It is a credit account specifically for your company. These accounts do charge interest that your customers will have to pay, and you may be charged a small transaction fee. However, you receive your money for the sale immediately, and your products and services are more affordable for consumers.
One consumer credit benefits survey found that buyers are more easily converted and become more loyal to a company that offers them financing. Most of the respondents (93%) said they would return to the merchant that offered credit and make additional credit purchases. The companies found that their average order sizes increased by up to 15%. Therefore, not only does your business experience easier customer conversion, but their orders are larger and they will return to your company for additional purchases.
How You Can Offer Financing
You have two choices when offering credit to your customers. First, you work with an established third-party provider. These individuals already have a system set up. They check your customers’ credit and determine their eligibility and credit limits. They also have all the contracts ready to sign. These companies handle all the billing and payments from your customers. However, if too many of your customers default on their accounts, your third-party provider can end your contract, eliminating your customer financing options with that provider.
The second option requires that you do all the work yourself. You have to check your clients’ credit and determine if they are creditworthy and how much they can afford to charge. You are also involved in the collections process, so you have to send bills and contact customers who are late or default. You may also have to hire legal professionals to create your contracts and recover losses from defaulted accounts. If your company is large and already has a significant accounting department with the knowledge to run many payables, this may be a good option for you.
Consumer financing is not a new concept. Many large retailers and business-to-business companies have offered financing for decades. Do your research to determine if this is a good option for your company.