Your Handy Guide to Consumer Financing

Consumer financing is one of the most lucrative businesses out there. By offering customers the ability to buy now and pay later, you can significantly grow your business. Here are the details on customer financing.What Are the Cons?Of course, there are possible downsides to the financing game. When you begin to offer credit, cash flow falls since customers only have to provide a downpayment. Make sure you're in a position to continue with a little less working capital for a while. Obviously, you must pay for the service if you use a third-party provider.The risk goes hand in hand with debt. When borrowers default, you may eat the loss. You can cut some risk using a third-party credit provider, but the provider may retain the option to end an agreement, which leaves you dealing with the aftermath. Plan for times when customers don't pay.If you handle financing yourself, you have to dedicate time and resources to this aspect of accounting. You also need a system for tracking payments and collecting overdue bills. The extra work might require hiring more employees or purchasing appropriate software.What Are the Pros?Even with the aforementioned complications, many businesses choose to offer consumer financing. Financing usually leads to higher sales because more customers can afford to purchase. Additionally, purchase amounts with credit are higher on average than those with cash, and consumers are more likely to get upgraded models and add-on items.Financing with a third-party platform guarantees payment since the provider handles the credit process. Avoiding the risk makes the cost of such a service worth it to many companies.Offering financing also improves your ability to compete in the marketplace. Large chains almost always have loyalty rewards and promotions tied to credit cards and financing. A customer who is ready to buy now may turn to your competition if you can't offer credit options.What Kind of Financing Should You Offer?The consumer financing you provide needs to fit your business model. Consider what gives you the least risk and the most significant increase in consumer purchases. Ask yourself: Will the cost of a third-party financing provider eventually be offset by the boost in revenue? How easy will it be for your team to learn the new financing tool? Will the solution continue to work as the company grows, or will you have to invest in a different option, costing you time and money?The popularity of customer financing proves it can boost your customer base and sales. Study your choices and see if consumer financing is a profitable option for you.