Should I Offer Financing to My Small Business Customers?

Should I Offer Financing to My Small Business Customers?


If waiting for customer payments to roll in is causing a cash flow issue, in-store financing could be a solution, and it’s not just for the huge box stores like Best Buy and Home Depot. By working with a third-party financing company, your small business can also set up a program where customers buy now and pay later. With this type of arrangement, you could increase sales, boost customer retention, and even improve your cash flow.

How Can I Offer Financing to My Customers?

When you think about offering financing to your customers, you might imagine that your business would extend the credit directly. In other words, you’d give customers the product or service with the promise that they’ll pay you back later.

While you could set up this arrangement, it’s more complicated and won’t fix your cash flow issues since you’re waiting on customers to pay their bills. There are much easier alternatives. It’s more common for small businesses to work with third-party financing companies like ViaBill, Financeit, or Snap Finance. These companies offer point-of-sale financing, where your customer borrows from them to make the purchase and your business gets paid right away. You benefit from making sales on credit without taking on the financial risk.

How Do I Make a Sale?

When your business signs up with one of these financing companies, they’ll give you an online and/or mobile program to process sales. As customers make a purchase, they can apply for delayed payments through the system. The financing company will review their credit score and make a decision on the spot.

If customers qualify, the financing company will pay your business in full for their purchases. They will then be in charge of setting up payment plans for customers and collecting money in the future.

You’ll need to pay a small fee for the service. It could be a monthly charge or a percentage of every sale, like for processing credit cards. Your customers could also owe interest on their installment payments.

What Are the Benefits of Financing?

In-store financing could make the difference between a sale or someone leaving to “think about it.” A customer might not be willing to spend or be able to afford $1,000 all at once, but if it’s broken down into five payments of $200, that’s a lot easier to stomach.

Even though your customer gets to space out their payments, your business doesn’t have to wait on the cash. You’ll get paid in full right away and it’s the financing company that waits on collecting their money. Customers also appreciate having the flexibility to pay later. They’ll remember that it was easy to pay in installments and your customer retention may improve.

Finally, the amount of work you need to do is minimal. The financing company reviews customer credit information and decides whether they qualify. They also take the risk of someone not paying the bill after setting up payment plans for customers. Your business just makes the sale and then you’re done with the transaction.

A small business owner offers financing to customers, allowing her to make a sale

Does It Make Sense to Offer Financing to My Customers?

While there are many benefits to offering installment payments, it’s not a perfect fit for every small business. The financing companies require a minimum amount of monthly sales or minimum transaction size, like a few hundred dollars. Otherwise, it’s not worth the effort of processing everything. If your typical sale or volume is too low, you might not be eligible to use these programs.

In addition, you will be paying an extra fee to the company. If all your current customers switch from paying cash to this new system, your total revenue could take a hit.

Finally, not all of your customers will be able to qualify for financing. You need to be careful about how you present this program, mentioning that acceptance is not guaranteed. Otherwise, you’ll get someone’s hopes up about buying your product or service only to let them down.

How Does Financing Impact Cash Flow?

Offering financing to your customers can be a long-term solution to improving your cash flow. You’ll generate more sales and get paid immediately by the financing company. However, it still will take some time to land these future customers.

If your business needs cash today, another option is to take out a short-term cash flow loan at the same time. Alternative lenders offer small business loans in as little as 24 hours so your business immediately gets money to manage payroll, cover your lease and pay your suppliers.

Once you start making more sales from your new financing system, you can pay off the debt right away as these loans don’t charge an early payment penalty.

If a financing program makes sense for your business, you get the benefit of offering customers credit while still getting paid upfront. That combo is hard to beat. No wonder all the big guys offer financing.