Customer financing focuses on enabling your customers to purchase services or items they could not otherwise afford to pay for upfront. The merchant receives the full payment upfront through the customer financing programs, while the customer gets the item or the service right away. The consumer is charged interest on the financing, and the merchant might have to pay a service fee depending on the customer financing companies involved.
One of the top reasons to offer a customer-financing option is to convert more buyers. Ideally, shoppers may not afford items or a service that they crave right away. However, through customer financing companies’ services, such buyers can get the products or receive the services. The merchant attracts customers who would otherwise not have purchased the items. Eventually, the merchant sees an increase in sales revenue.
So, what are the different forms of customer financing for small businesses? This post shares the different customer financing options for companies. Customer financing falls into two broad categories. They are:
- Closed-end financing
- Open-end financing
Let us evaluate each of the two to find out what exactly it entails:
The Basics Of Closed-End Financing
Closed-end customer financing serves a particular purpose and restricts the customer to a certain amount for a specific period. Therefore, the repayments can be equal installments or, as mentioned in the contract document, commonly referred to as the agreement.
For secure customer financing, the merchant retains some form of control until the payments have been cleared. An excellent example of closed-end credit is mortgage loans or automobile loans. With automobile loans, the car company will have a “lien” on the car until the car loan has been paid in full.
The Basics Of An Open-End Credit
The open-end consumer financing option is where the revolving credit occurs as the consumer makes a purchase. Like the closed-end customer financing option, the open-end financing sets a maximum amount of credit that you can use, and it is often referred to as the line of credit. Therefore, unless the borrower pays off the debt in full each month, they will have to pay a high-interest rate for using the credit.
Why Consider A Consumer Financing Program?
Consumer financing programs are suitable for all businesses, small or established enterprises. There are different reasons to support customer financing services. Here are some of the top reasons we support consumer financing:
Offers an additional payment method to the customers for your good and services
As explained above, consumers may not afford some services or items they crave. Through customer financing service, the consumer has an additional payment method that can be used to acquire the items or the services they desire. In some instances, these could be essential services like treatment, and cannot wait until the next paycheck. Therefore, offering consumer financing becomes a way of enabling consumers to purchase what they need.
Customer Financing Companies Handle the Monthly Repayments
One of the reasons why merchants may not be willing to offer credit is the stress that comes with collecting repayments. However, through customer financing companies, the merchants do not have to worry about debt collection. The merchant can leverage the customer financing service experience when it comes to collecting the debts. Besides, a wide range of consumer financing options allows the merchant to receive the payments upfront.
Unlike bank loans, customer financing services feature a faster processing time. Thus, you do not have to worry about the waiting period. A wide range of customer financing programs uses accelerated insight platforms offering fast and fair frictionless experience when deciding whether to lend to the consumers.
For the merchants, customer-financing services allow an opportunity to boost more sales. This is by enabling the customers more purchasing power. The flexibility to make regular repayments attracts the customers and eliminates the most significant barrier of closing a sale, which is affordability.
Attract New Customers
Another top advantage of customer financing service is the ability to attract new customers. Therefore, when businesses offer financing programs, they grow the customer base by making the products or the services affordable for the consumers.
Are you contemplating including customer financing in your business? You need to ensure an efficient approach to scrutinizing the customer’s creditworthiness. Accelitas allows you the ability to reimagine your business. This is by giving the new generation of consumers the credit they deserve. Talk to us today!