If you have recently started a business, then you may be having a tough time attracting customers, which is quite natural as you have just started this, and nobody knows about your company. Well, in that case, you should focus on building your business presence online to boost its discoverability and reach more and more customers.
To effectively achieve this thing, your main goal should be to adjust your business as per the unique requirements, and budgets of your customer base. One of the best ways in which you can increase your customer loyalty and boost sales is to offer them the consumer financing option.
Now, the main question that arises in this aspect is what is referred to as consumer financing. If you are hearing this term for the first time, then don’t worry, we will uncover all of your concerning doubts in the following section. Here, we will not only talk about what consumer financing is, but we will also let you know about the role that it plays in enhancing sales for merchants. So, without any further delay, let’s dig into our discussion to understand this well.
About Consumer Financing
As a part of consumer financing, the customers are allowed to enroll in a payment plan so that they can purchase any services or goods they want. Like a credit card, in this case, also the merchant gets their full payment beforehand.
Also, the consumer gets the product or service right away. Only, they have to make payments over time. A certain amount of interest is generally charged from the customer on the financing. Again, for each financed transaction, the merchant might have to pay small fees.
So, it can be said that it allows the customer to choose a cost-effective payment plan, rather than paying the overall amount beforehand. Thus, this financing option is devised in a manner to effectively convert individuals from viewing and thinking about buying to purchasing your product. That’s the true power of customer financing. Thus, as a merchant, you would be able to reap several interesting benefits.
Due to a range of benefits offered by this particular option, nowadays, larger brands and small businesses are involved in providing the facility of customer financing. It is because they have realized the potential of this option. By incorporating this option, several businesses have managed to convert more people into buyers.
If you wish to know more about the role of this financing option in boosting sales for merchants, then we will talk about this in detail in the following section:
Benefits Of Customer Financing For Small Business
Customer financing comes with many obvious benefits. Let’s have a close look at those:
Boost In Sales
As already discussed in the above-mentioned section, the main objective of this financing option is to enhance your sales by converting more visitors into buyers. By providing a flexible plan of payment for your costly products, you are making it viable for the consumers to make a purchase.
In this way, you would be able to significantly reduce the chances of an abandoned cart. Not only that, but it encourages consumers to achieve sales of more costly things. Ultimately, you would be able to generate more revenue for your business with this particular approach.
Gain More Customers
By providing the option of consumer financing, you are not only boosting your sales but also achieving more consumers. Without the help of customer financing, you would have not been able to achieve this thing. In case your target customer is looking forward to making a large purchase such as a fridge or a sofa, then they might prefer to buy from you rather than from a competitor who does not provide the facility of customer financing.
Again, due to this advantage, the same customer might arrive at your store for upcoming purchases as they are by now well aware that they will be approved for your plan of payment. In this way, this particular option works effectively to boost your consumer retention.
In case, you are considering working with an outside consumer financing service provider, they will focus on paying you the full amount of the items upfront which is its best part. After that, they are involved in collecting payments directly from the customer. It aids in effectively limiting the risk for you.
Along with that, it also boosts your direct cash flow and thereby making it much simpler for you to invest in other areas of your business. In this manner, you would be able to provide your customer with a helpful and valuable service. Other than that, it also works effectively to enhance the cash flow of your business. It is particularly because financed-backed purchases work similarly to any other purchase which was paid in full while buying.
Drawbacks Of This Financing Option
In spite of having these amazing advantages, this financing option also comes with some drawbacks which you should necessarily have a clear idea about. Let’s know about these in the following section:
Can Lead To Bad Debts
It is always a best practice to carry out a comprehensive credit check before you are financing a customer. Although it is very important to ensure this, it not always works that effectively. You may not know about how responsible a particular customer is with their finances or what type of financial roadblock they are running into.
All of these might significantly impact the recovery process. So, the chance of bad debt is always there. Yet, if you have utilized a 3rd party provider, most merchant contracts say that they have all the rights to cease the agreement at any point in time. So, whenever you go for this option, you should be ready to take that risk.
Effect On Cash Flow
If you are not working with a 3rd party provider for providing financing to your consumers and you are focusing to provide it on your own, then at the initial stage, you should be ready to observe a negative impact on your cash flow.
Now, after reading this detailed guide, we hope, all your doubts related to consumer financing are clear. If you are looking for related assistance, you should always choose a professional service provider.
If you have recently started a business, then you may be having a tough time attracting customers, which is quite natural