Customer Financing for Small Business: Pros and Cons
As always, when considering a new business model, you’re going to want to weigh the pros and cons to make sure it’s the right option for you. When it comes to customer financing, there are some obvious benefits, as well as a couple of hidden risks to prepare for. Let’s take a look.
Pros of Customer Financing
As we mentioned earlier, there are a variety of studies that show offering financing to customers is ultimately beneficial for merchants. Therefore, let’s explore some of the top benefits of customer financing for small businesses.
1. Increased Sales
At the end of the day, and as we discussed, the general purpose of customer financing is to increase your sales by turning more browsers into buyers. By offering a payment plan on your expensive items, then, you’re making it possible for customers who might have otherwise left your store without buying anything to complete a larger purchase. Therefore, by encouraging customers to complete more sales of more expensive items, you’re creating more revenue for your business.
2. You Gain Customers
Ideally, by offering customer financing, you’re not only increasing your sales, but gaining customers you otherwise would not have attracted. To explain, if your target customer is in the market for a large purchase, like a sofa or a fridge, they might be more likely to buy from you than from a competitor that doesn’t offer financing. Moreover, the same customer might also be more likely to return to your store for future expensive items, since they already know that they’ll be approved for your payment plan—thereby increasing your customer retention.
3. Upfront Payments
If you’re working with an outside customer financing company, they’ll pay you upfront for the full price of the item and then collect incremental payments directly from the customer. This is a huge benefit as it not only limits the risk for you, but it also increases your immediate cash flow, making it easier to invest in other parts of your business. In this way, you’re offering your customer a service that is valuable and helpful to them, while increasing your business’s cash flow, since financed-backed purchases act as any other purchase that was paid in full upfront.