March 21,2021 – It is well accepted that customers do not always have the funds required to purchase goods or services up front. Luckily, there are many ways that customers can still make purchases, which is mutually beneficial for the customer who needs the good or service and the business that is able to earn a profit. A common option business owner’s offer to customers is financing. Read on to learn what consumer financing is, the many benefits of it for both customers and businesses, and who stands to benefit from it.
What is Consumer Financing?
When you as a customer cannot pay for something upfront, you can still purchase it using a line of credit. By using a credit card, you owe a debt for the cost of what you bought to the credit card company. A bank can likewise offer you a loan. Consumer financing, however, is when the store or business offers its own branded consumer financing through a bank. Most commonly, consumer financing could be in the form of payment plans breaking the larger purchase amount into smaller ones. Store credit cards are another form of consumer financing.
Customers Can Improve Their Credit
Making regular payments toward a debt to reduce it over time is a great way to build credit. A good credit score is the gateway to greater economic freedom and increases your likelihood of being approved for favorable loans, mortgages, and rates in the future. Compared to other recurring payments, consumer financing credit lines are not very difficult to pay off. Once your debt is paid off, you fully own the item or service, and you will likely see a jump in your credit score.
Customers Can Have More Buying Power
Even when actively working to save, some purchases are very expensive, like home improvement projects, car repairs and furniture. Rather than totally exclude people with less buying power from getting to purchase and own more expensive things, consumer financing levels the playing field by increasing the buying power of consumers. The benefit for businesses is that it opens them up to a whole universe of customers who would otherwise have been priced out of purchasing their goods and services.
Customers and Businesses Will Be Happier
Consumer financing is great for customer satisfaction because it gives customers access to quality services and products that otherwise might have been too expensive to fit into their budget. Consumer financing also relieves some of the financial pressure created by making a big purchase upfront. Rather than see an enormous dent in your savings which could potentially cut into your savings for other important purchases and emergencies, consumer financing would allow you to make smaller payments over time. Many customers are drawn to businesses that offer consumer financing, which makes it an effective way for businesses to stand out from the crowd and attract more customers, who will in turn have a good experience thanks to the business’s consumer financing options and become repeat customers.
Businesses Will See Their Bottom Lines Increase
Because offering financing to cutomers is likely to lead to an increase of more and happier customers, businesses will see an increase in their profitability without changing much of their models. When a business owner starts to offer financing to customers it leads to increased conversion ratios, cash flow, and over time, has been shown to result in higher levels of customer spending. Because consumer financing payment plans are lower, customers are more likely to add more to their order while remaining within budget.
Things to Keep in Mind
There are risks to offering financing if the business owner chooses not to use a bank. If you as a business do not properly vet prospective customers, you run the risk of seeing them default on their debt, costing you revenue and chattel. There are also some legal boxes to check that are well worth exploring with a lawyer before starting to offer consumer financing options. There is no risk to the business owner when utilizing consumer financing through a bank because the bank takes full responsibility for the customer. Finally, offering consumer financing to customers is a proven way to grow your business without risk. Consumer financing creates customer loyalty by bringing back the same customer has they payoff their loan.
About VIP Financing Solutions
Since 2005, VIP Financing Solutions has worked with small businesses to help them take advantage of every business finance tool at their disposal. We understand the needs of small businesses and offer the industry’s largest selection of financing options that can offer you a real-world solution to all your small business financing needs.