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Are you losing customers to the bigger corporations? Sometimes it can feel like an uphill battle when you're trying to grow your business in a world where the industry giants rule. If you're looking for potential ways to get ahead of your competition, offering your clients finance options, such as point-of-sale (POS) financing options and 0% interest credit, could be just what your business needs to push through.
Depending on the nature of your business and the cost of your inventory, there are a number of finance options designed for small-to-medium-sized enterprises (SMEs) to offer to their customers.
Customer finance is a payment plan that customers can use to purchase goods or services from your business. The customer receives finance from a third-party provider that you've partnered with, allowing them to receive their goods upfront and pay off the purchase over time.
Customer finance providers differ in how their repayment plan fees are structured: some offer interest-free plans, while others may charge interest or fees to customers for using the service. You will usually need to pay a merchant fee to offer the service to your customers.
The best candidates for customer financing are businesses with high-ticket products and services that cost $500 or more. While what constitutes as an expensive purchase varies from customer to customer, whether a customer needs to rely on a credit card to complete the purchase is typically a fair benchmark.
Businesses that sell the following products can benefit from offering customer financing:
As with any lender, the minimum loan amount will vary from one provider to the next. You'll want to try for a minimum that matches your inventory or services, but you should also consider other features that address your and your customers' needs.
Offering finance to your customers can be a good way to convert "I can't afford this right now" into "I'll take it today". A large roadblock for businesses – and in particular, businesses that supply more expensive products or services such as home renovations, furniture retail or wedding services – can be that customers just don't have the upfront cash available. Offering customer finance can boost and potentially even double the number of conversions a business makes.
Some finance providers will even offer training and sales support to promote their finance offering within your business and help you boost your sales.
But while there are many benefits to offering customer finance, there are a few drawbacks to consider as well. We've broken them down for you below.
There are a number of ways that you can offer credit to your customer base.
0% interest finance can be an attractive solution for customers looking to make larger purchases with the ability to pay in instalments. Depending on your business's annual turnover, you may qualify to offer 0% interest finance through a third-party provider.
There are a number of 0% interest providers on the market that offer customer credit options to SMEs. These include buy now pay later options such as Afterpay, Zip and Humm.
First, you need to sign up as a retail partner to be able to offer customer finance in-store, online or both. Then it's easy – your customer will be able to select your chosen customer finance option as the payment method at the checkout and they'll sign up to the plan using their personal details. If the customer has already signed up with the customer finance provider before, they can simply use their credit limit to make a purchase.
The provider may run a credit check on the customer to make sure that they can meet repayments. They'll then offer approval on the spot. The lender will then assume all credit risks, your business will receive the money for the transaction upfront (minus any fees) and the customer will receive their purchase right away.
Most 0% interest credit providers are available both in-store and online. Some interest-free finance providers offer POS material promoting interest-free finance in-store, a well as training and support services for your staff to help to promote interest-free purchasing.
The cost of using a 0% interest credit provider will vary depending on the size of your business and your annual turnover. The provider will usually analyse your business credentials and make you an offer based on your circumstances. You may be charged:
Often providers make their money by offering interest-free introductory periods to customers but will eventually charge interest over time. Some will charge the customer higher fees and the merchant less, and others vice versa. Some interest-free finance providers will also have minimum and maximum transaction requirements. These will vary from lender to lender.
It may be worth speaking to a number of providers prior to submitting an application to make sure that the provider you choose fits your business model best.
Merchant fees differ among providers. It's important to check these before you sign up with an interest-free provider and ensure they will be manageable for your business.
It's also worth considering whether interest-free finance would work for the nature of your business. If you own a retail store, then interest-free credit might integrate seamlessly. However, it may not be the right fit for all businesses.
When considering providers, keep both the needs of your customers and the needs of your business in mind.
As well as interest-free finance, there are also some small business finance providers that may offer customer finance for your business. These include:
Unlike interest-free credit providers, you may have to do a bit of digging to find out which small business lenders provide this specific type of finance, as it may not necessarily be obvious from their websites.
As with interest-free finance, once you've made an agreement with a provider, your customers will be able to sign up to the payment plan online or in-store. The third party will usually run a credit check on your customers and they will usually be approved for finance on the spot, but this could vary from lender to lender.
Once your customer is approved for finance, they will receive their items or service right away and you will receive payment upfront.
The cost of small business customer finance will vary from lender to lender and will also depend on the size and nature of your business. The costs may include:
Some small business finance providers will have minimum transaction requirements for their service. They may also have other requirements, such as a minimum amount of sign-ups each month or a minimum credit amount via your business. Be sure to check all of these potential factors before submitting an application.
Some lenders may put the bulk of the fees and charges onto customers, where others may hold the merchant accountable for the expense of the service. Be wary that small business lenders may charge higher fees than some of the interest-free providers, as smaller businesses with less annual turnover pose higher risks to lenders.
If your business is a B2B and you provide or could provide invoices to clients for your goods or services, you may benefit from invoice finance. Invoice finance is not traditionally a form of customer finance, but could potentially be used as such depending on your business and the services that you offer.
Invoice finance is typically a cash flow solution that allows businesses to unlock capital tied up in their unpaid invoices. You receive the invoice amount upfront from a third-party provider and your customer pays the financing company directly when the invoice is due. The invoice is used as security against the payment.
Some invoice financing companies offer the option to pursue payments themselves as well as provide insurance should the payment not be met, while others will leave the debt collection responsibilities to your business. Some invoice financing companies will run credit checks on your customers and others may not.
Some invoice finance providers offer customer finance solutions in which your customers can pay your costs or fees in monthly or weekly instalments. However, this will depend on the lender and some invoice financing companies might require full payment in a single instalment from your customers. Speak to your provider to see whether there is an option for you to offer your customers a monthly or weekly repayment plan.
Invoice financing costs depend largely on your business's annual turnover, your credentials and your industry. Normally with invoice discounting, a portion of the unpaid invoice is withheld (10-30%) and a "discount fee" is applied. A discount fee works in the same way as bank interest: it is the cost charged for the lending service, calculated on a percentage of the invoice value. This fee is taken from the withheld amount of the invoice and the remaining money is transferred to the business.
However, if you were to use this method as a form of customer finance, you may be able to offset some of the costs by charging a surplus on your invoices to customers who do not wish to make an upfront payment. Some invoice financing companies for industries such as accounting and law transfer the interest payments to the client, who pays off the invoice balance in instalments. Check with your provider to see if it can offer this service.
Check all of the legalities and speak with your provider directly before offering your customers finance through the medium of invoice financing.
You can also provide in-house financing for goods and services. To provide your own in-house credit to customers, you will need to gather the following information:
This kind of finance can be time-consuming and risky for small businesses, and without a third-party provider, your business would not receive the payment for the transaction upfront.
Make sure you weigh up all of your options carefully before committing to a customer finance plan.
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