If you are a new business owner, you are probably focusing on establishing your brand and increasing your revenue through new orders and customer acquisition. You are likely sharing how your business and its products meet your customers’ needs. You may have invested in local, online, and traditional marketing channels and have gained public interest and recognition. However, if you are looking for another way to increase revenue, you should learn about customer financing.

What Is Consumer Financing?

When you offer customer financing, you allow your clients to purchase their goods and services right away and pay over time. You may know about the credit offered by large companies, such as Home Depot, Victoria’s Secret, and Target. Even online companies, such as Amazon, offer to finance. This is essentially a credit account that you allow qualified buyers to open so they can enjoy their products immediately without paying today.

How Does It Work?

You can offer to finance your customers yourself. In this case, you will be responsible for collecting the money your clients owe you. You need a strong accounts receivable process and a way to check your customers’ credit. You also take on all the risk if they decide not to pay you. Essentially, you are enrolling your customers in a payment plan. You can also charge interest, increasing your future income.

You can also work through a third-party financing company. This company will charge you a small fee for every transaction that your customers make on credit. In addition, these companies charge your clients interest on their credit balances. Your risk is reduced because you don’t have to bill your clients. The financing company takes care of that. However, if you have nonpaying customers, you may be responsible for their outstanding balances.

What Are the Benefits of Consumer Financing?

When you offer to finance your customers, you increase your product and service affordability. This often leads to increased customer conversions, order sizes, and loyalty. It can also encourage your customers to come back and reorder more often.

What Is the Cost of Financing?

Your third-party financier will determine much of your financing costs. However, in general, you will be charged a transaction fee of up to $0.50 plus a percentage of the order, typically up to six percent. Therefore, if your customers make lots of small orders, your costs could increase significantly. However, if their orders are high values, your fees are minimal compared to your income.

Consider the advantages and disadvantages of offering consumer financing to your clients. Then, consistently evaluate your costs to ensure you are benefitting from this program.