If you own a small or medium-sized business, part of your business strategy probably deals with growth. In fact, you may even be thinking about offering consumer financing to your patrons. Therefore, these are a few things you should know about this financial tool.

Consumer Financing Defined

When you offer financing to your customers, you allow your customers to make payments on your purchases through a payment plan. These accounts are similar to credit cards. Although your customers only make payments on their purchases, you receive the full amount of the purchase less the fees your finance company charges.

Offering Financing

If you want to offer financing to your customers, you need to speak with a finance company that specializes in this type of financing. These companies check your customers’ credit within a few minutes. The finance company will then determine the amount of interest your clients pay on their accounts. Some customers may even qualify for an interest-free period or promotion. Your customers pay the finance company directly, while you receive the full purchase price upfront. Your job is to find the best finance company to work with.

Financing Cost

Each financing company offers different options. However, the services they offer and the fees they charge should be similar. For example, most providers will charge a fee of around two to six percent. They also typically charge a flat per-transaction fee of up to $.30. You may also have to pay a monthly fee of up to $50. Your fees may vary based on the number of transactions the company finances.

Before you sign up with a finance company, you need to conduct a cost-benefit analysis. You may even test a financing system for a few months to determine how much it costs compared to the benefits you receive.

Disadvantages of Financing

Although there are several benefits to offering financing, you may also encounter a few disadvantages. For example, you are responsible for any bad debts. This means that if your customers default on their debts, your finance company will come to you to pay them back or collect the money from your customers. They may even cancel your financing account.

Benefits of Offering Financing

Because your customers don’t have to pay for their entire purchase upfront, you may find some unexpected benefits of offering to finance. For example, your sales volume will increase. Not only will your average order size increase, but you will also experience greater customer conversions. In addition, you receive your payment for the full order immediately.

Consumer financing can be a great asset for your small business, but be sure you run the numbers to ensure that it is right for you.