Offering customer financing at the point of sale (POS) can improve sales and conversion rates, strengthen brand loyalty, and generate repeat business. However, without a solid understanding of the platforms available or what solutions work best for your customers, you might not fully leverage its capabilities. Instead, knowing how to offer customer financing is critical for running a successful financing program, including understanding the available options and identifying suitable lenders.

What is Customer Financing?

“Customer financing” is defined precisely as it sounds: a financing plan that allows customers to purchase goods and services today with borrowed money and pay off that debt over time. 

Like a credit card transaction, the lender provides a merchant with the entire payment upfront. In return for borrowing the money, the customer pays the lender a predetermined interest rate on the financing. The lender might also charge the merchant a marginal fee for each transaction.

How to Offer Customer Financing: Five Steps

For most merchants, offering customer financing is typically an effective way to increase sales. However, determining a financing structure requires much more than picking and teaming up with a lender.

While designing a successful financing process requires taking several steps, the following five are ones merchants might always consider:

1. Make Sure Customer Financing is Right For Your Business

Providing customer financing is not always a simple process, and you must ensure it is an appropriate product for both your business and your customers.

For the merchant, customer financing is a means to convert potentially cash-strapped window shoppers into buyers. The intended targets are typically customers interested in buying your goods or services but balk at the upfront payment amount. You might improve customer loyalty and complete more extensive and frequent sales by providing customers with an additional financing option.

2. Do Your Research Before Selecting a Lender

Once you have determined that offering customer financing is an appropriate and potentially beneficial business move, the second step is to identify a lender with whom to partner.

Factors you should consider when choosing a lender might include (but are not limited to): 

• Whether the lender charges ancillary fees for each transaction
• Whether the lender requires a minimum transaction order size
• How the lender’s financing services have improved their existing clients’ sales results 

After identifying a lender, you will need to evaluate your financing program options and select the most appropriate for your business type. 

Three of the most common financing programs are as follows:

• Traditional financing: This is the most common financing program. The merchant partners with a lender that fronts the money on the customer’s behalf. The lender then turns a profit by charging fees to the merchant and interest to customers.

• Invoice financing: This is a B2B-specific financing relationship. Businesses typically purchase bulk orders using an open credit line. Those businesses then procure funding from a third party against the cash owed by customers. In essence, this is a means to stabilize both cash inflows and outflows for budgetary purposes. 
• Interest-free financing: This is a less common financing program. In this scenario, companies will offer financing programs at no interest cost to customers, provided they pay off the loan quickly. This option typically entices more buyers but often comes with higher merchant fees and lower approval rates (i.e., fewer potential customers).

3. Train Your Employees on Customer Financing

If you are looking to provide customer financing at POS in a brick-and-mortar store location, you should consider training employees on the process. 

More specifically, they will typically be responsible for the following daily tasks:

• Discussing the financing program with customers and educating them on the process and requirements.
• Collecting the client information necessary for completing the application.
• Processing that information and discussing the results (approval or rejection) with the customer.

4. Advertise the Financing Option 

A consumer financing program is only as successful as its visibility. Without a thought-out marketing plan, would-be customers who cannot immediately afford the total price of your products or services will be unaware that financing is an option.

When you plan to introduce new products to customers, you should allocate a portion of that budget to marketing your new financing solutions. However, the extent of that marketing effort (and the marketing vehicles you choose) may depend on the available dollars. 

For example, your budget might limit you to targeting a specific customer base via social media ads and email campaigns. If your company has a website, you might also consider a front-and-center advertisement on the home page – particularly for new products just hitting the market.  

On the other hand, you might invest in radio, television, and billboard ads if you have more capital.

5. Keep Track of the Program’s Process 

This step might go without saying, but you should periodically evaluate your financing program’s effectiveness and profitability.

These reviews do not necessarily require an in-depth, complex analysis. Still, you might consider tracking conversion rates and any improvements (or lack thereof) that directly result from your new financing program.

Customer Financing: The Bottom Line in Today’s Economy 

The economy has struggled in recent years, and times have been tough for consumers. Most people do not have the disposable income they once did, and many potential customers are resigned to spending what they have on the bare necessities.

These struggles mean that, for some customers, financing options are more than a convenience – they are a necessity. Understanding how to offer customer financing might be critical in attracting new customers and retaining your existing ones.