How Consumer Financing Can Boost Your Bottom LineSell more big-ticket items and increase order sizes by offering customers more credit options.
Have your customers ever asked if you offer payment plans? If your small business sells products and services that regularly tally more than $500, you may want to consider offering financing options to consumers.
Research shows that extending more credit options to shoppers can increase sales, boost customer loyalty and improve customer service. According to PayPal data, online businesses that offer consumer financing can see average order value go up as much as 68 percent.
To learn more, NCR Silver talked to Dock David Treece, business analyst for Fit Small Business, and Greg Lisiewski, CEO and co-founder of financing provider Blispay, about how offering consumer financing can boost your small business’s bottom line.
What is consumer financing?
Treece: “Consumer financing is a tool that businesses can implement to help their customers finance purchases. The way consumer financing typically works is that a company that’s selling items over a certain threshold (often $500-$1,000) partners with a consumer financing company. The finance company then provides tools for a seller to quickly check the credit worthiness of a customer who wants to finance their purchase so they can get a quick decision. If financing is extended to a customer and they accept, the financing company services their short-term loan until it’s paid-in-full.”
Which industries typically reap the greatest benefit from offering financing?
Lisiewski: “Any business that has a high average order value has the potential to benefit from offering some sort of financing program. Business verticals that typically benefit from offering consumer financing include furniture, tools and hardware, sporting goods, home improvement, pest control and jewelry.”
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In what ways does the business benefit from offering consumer financing?
Treece: “While consumer financing allows a buyer to space out payments for their purchase over time, it also allows a business to make a sale to a customer that otherwise might not be able to afford it. By offering consumer financing, a business can facilitate sales that they otherwise might not have and help consumers who might not otherwise be able to buy.”
Lisiewski: “Having a financing program can really be a win-win for both the business and their customer… A common misconception with financing is that it’s only used to help consumers buy things that they can’t afford. But that’s false a lot of the time. In the case of prime lenders like Blispay, customers leverage credit because they want to instead of because they need to.”
How does using a professional finance company differ from extending an in-store line of credit to customers?
Lisiewski: “Partnering with a financing company to extend credit to consumers is different than offering in-store lines of credit because the financing company is on the hook for repayment of the loan. It’s lower risk to partner with a financing company because financing companies are experts at deciding who to extend credit to, how much to extend, and at servicing those accounts.”
Treece: “If you’re thinking about extending consumer financing, it’s almost always better to work with an established financing company. Very few business owners know their customers well enough to be a good judge of creditworthiness, while established companies have defined processes for quickly assessing a borrower’s credit. They’re also able to spread out their risk over many companies and many consumers, so a few bad loans don’t hurt them as much financially.”
How would a small business owner go about setting this up in his/her shop?
Treece: “Business owners who think they might benefit from consumer financing should start by reaching out to a few providers and getting initial feedback. Once an established consumer financing company knows the type of business and their average customer, they can provide valuable insight on whether a specific business would benefit from consumer financing.”