Consumer Financing: When to Use It and How It Works
If your company is looking for ways to attract customers and increase earnings, consider offeringconsumer financing for your products. For large purchases, many individuals are reluctant to part with a significant amount of cash, even if the product is a necessary item. To assume that most Americans would put these types of purchases on credit card goes contrary to the financial statistics of the country. Almost 30% of the nation operates entirely on cash, and almost 40% of citizens do not have a credit card. When it comes to buying an appliance or furniture, these folks either do without until they have the cash, or they need an alternate form of payment. This is where retail financing comes in.
How Consumer Financing Works
Some companies look to in-house financing to motivate customer purchases. Through a quick credit approval process that takes place at the checkout counter, a company offers to finance the amount of the purchase across the span of anywhere from 6 to 24 months. Customer payments have an added fee that either corresponds to the dollar amount financed or that aligns with the number of months the financing is offered. More companies are offering interest-free financing for a limited number of months. While offering a financing process increases consumer spending, there is an added risk for the hosting company. If a customer defaults, the company must absorb the loss of revenue. Choosing a third-party consumer financing company is a step towards risk management. The financing company will pay your company directly for the goods or services up-front, and your customer then settles the monthly payment with the financer. You don’t have to wait to get your payment and you customer doesn’t have to wait to take advantage of a product or great sale.
Who Should Take Advantage of This?
Before contracting with a financing company, consider the following:
- Does your company offer big ticket products or services that make purchasing more stressful when on a limited budget?
- Does your consumer market have the credit necessary to take advantage of a finance package?
- Will your customers have enough items in a single transaction or as a single item purchase that would meet a minimum purchase requirement?
- Will your business be able to turn a profit even with the fees (either monthly or sales percentage) charged by the lending company for use of services?
If you answered ͞yes͟ to most of the questions, your company might benefit from offering consumer financing to your customers.