Customer financing is a great strategy for business growth. This is a good way to make a sale by giving customers more time to make payments.
It’s a win-win situation for both the seller and the buyer. The seller gets extra cash flow and the buyer gets more time to pay off their purchase.
However, many companies fail at this strategy because they don’t know how to get it right!
Here are 8 facts you should know before you reach your customer financing options:
1. Customers Don’t Want to Wait for Financing
A recent study by LendingTree found that nearly 50% of consumers are willing to go through a lengthy and complicated application process for customer financing services if it means they’ll get the item sooner.
The study also revealed that 48% of consumers would wait up to one week for their purchase, 34% would wait up to two weeks, and 22% would wait longer than two weeks.
2. Make the Application Process Easy
Offer customer financing will be more likely to use your financing program if you make it easy for them to apply and get approved.
That’s why it’s important to offer multiple options when submitting applications and making payments.
If a customer wants to apply online, he should be able to do so without having to fill out long forms or provide personal information over the phone — especially if he’s already provided this information in previous transactions with your business or website.
3. Don’t Waste Time!
If you don’t have a solid business plan, do your homework before you start looking for financing.
A good business plan includes your company’s operations, marketing plans and financial statements.
Once you’ve completed your business plan, share it with potential lenders so they can understand the risks and rewards of working with you.
4. Provide Necessary Information Up Front
When applying for a loan or line of credit, provide all necessary financial documents up front.
The lender can make an informed decision quickly and without hassle on their end — and without asking for additional paperwork from you later on down the road.
The more information you give them up front, the better equipped they’ll be to assess your application and determine whether or not they want to help fund your business venture.
5. You Can’t Always Believe What You See on Credit Reports
There are plenty of myths about calculating credit scores, but this is one of the most pernicious: If you have a long history of on-time payments and no late payments, you’re likely to have a good score. In reality, however, your credit score considers many other factors that can make it difficult for you to predict your future.
According to FICO, the leading provider of consumer credit scores, your payment history accounts for 35% of your score.
But it only counts your most recent 12 months of payments — so if you made a late payment last year but paid everything on time since then, it wouldn’t count against you.
Other factors include amounts owed, types of credit used (e.g., mortgages versus car loans), length of credit history, new accounts opened and types of inquiries (e.g., how many times someone has pulled their report in the past year).
6. Know Your Customer’s Credit Score and History (or Use a Third Party)
Knowing your customer’s financial history is important because it will help determine if they can be approved for financing. Sometimes, buyers have good credit but may lack the necessary funds to purchase.
If you use a third-party company for your financing options, they do not require you to know your customer’s credit score, so this will save you time and money.
However, if you want to do everything yourself, then it is important that you know what questions to ask when checking their credit scores and history.
7. Use a Smart Pricing Strategy for Your Financing Options
The biggest mistake people make when consumer financing options is failing to create a smart pricing strategy for each option.
For example, suppose someone is making a $200 purchase and has a bad credit score.
In that case, they may be offered an interest rate of 40 per cent for an instalment plan over 12 months or 20 per cent for an instalment plan over 24 months — but what if they only wanted to pay $100?
This person would also be paying $40 in interest because there was no way for them to pay off the loan within 12 months without incurring more interest charges.
If, instead, we offer our customers options like “pay 10% down, receive 15% off” or “pay 20% down, receive 25% off,” we’d be able to offer our customers better pricing on their purchases and make more money in the process.
The same goes for cash-back offers: If customers can get 15% off their purchase by paying with a credit card, many will choose to use plastic instead of cash.
8. Pay Attention to Your Customers’ Financial Needs
It’s easy to forget that your customer financing companies aren’t just about your selling product or service. They’re also about helping customers get the financial resources they need to buy it.
You need to pay attention to what your customers say when they talk about their needs, budgets and priorities.
You can use this information to determine whether they have the financial resources to pay for what you’re offering right now — even if it’s something as simple as a subscription service or an annual purchase of equipment.
If these customers can’t afford what you’re selling right now, you’ll need to figure out how to lower prices or offer other financing options that might fit better with their budgets.
Final words
Presentation of information to an online audience can be done in an easy, understandable way with the help of trend tables.
Keeping these tips in mind will give you no trouble reaching your customer financing programs.