Customer Financing Terminology for Merchants: A Plain-English Glossary
Customer financing comes with terminology that can sound more complicated than the process itself.
For a business offering financing, understanding a few core terms makes it easier to explain the option to customers, train employees, and know what is happening after an application is submitted.
This glossary focuses on the terms merchants are most likely to encounter when offering third-party financing.
Terms inside the financing workflow
The Core Customer Financing Terms
Customer Financing
Customer financing is a payment option that allows a customer to use financing to pay for a product or service rather than covering the full purchase price upfront.
For a business, offering customer financing does not necessarily mean becoming a lender. With a third-party model, a separate lender evaluates applications and establishes the financing terms.
Lender
A lender is the financial institution or financing company that evaluates an applicant and, when approved, provides the financing.
The lender is responsible for decisions such as whether to approve the application and what financing terms to offer.
Soft Credit Pull
A soft credit pull, sometimes called a soft credit inquiry, is a credit review that does not affect the applicant's credit score in the way a hard inquiry can.
In the Flexxbuy process, the customer's initial application uses a soft credit pull.
Hard Credit Pull
A hard credit pull, or hard credit inquiry, is generally associated with a customer formally proceeding with a financing request.
Within the Flexxbuy workflow, a hard credit pull occurs only after an applicant selects an available offer and proceeds with that lender.
Preapproval
Preapproval is an initial indication that a customer may qualify for a financing offer based on the information reviewed at that stage.
It should not be described as guaranteed financing. Additional lender review or requirements may still apply.
Final Approval
Final approval means the lender has completed the applicable review and approved the financing under the lender's requirements.
This is different from preapproval, which occurs earlier in the process.
Underwriting
Underwriting is the lender's process for evaluating an application and determining whether, and under what terms, it is willing to extend financing.
The exact factors and requirements are determined by the lender.
Funding
Funding is the stage when approved financing is completed and the financing proceeds become available according to the lender's process.
After final funding, the merchant collects payment directly from the customer using the financing proceeds.
APR
APR, or annual percentage rate, is an annualized measure used to communicate the cost associated with borrowing.
The APR offered to a customer is determined by the lender and the particular financing offer.
Merchant Fee
A merchant fee is a fee that a business may pay in connection with providing or processing a financing option.
How merchant fees are structured depends on the financing arrangement or provider.
Installment Loan
An installment loan is financing that a borrower repays to the lender through scheduled payments according to the loan agreement.
In a third-party financing arrangement, the lender manages the financing relationship while the merchant focuses on the underlying sale or service.
For a focused explanation of credit inquiries, see Soft Credit Pull vs. Hard Credit Pull.
How These Customer Financing Terms Fit Together
Understanding the definitions is easier when they are placed in the context of a normal merchant workflow.
Flexxbuy provides a branded application page or link that can be shared wherever a normal link can be used.
The initial application uses a soft credit pull.
If offers are available, the customer can review them before deciding whether to proceed.
If an offer is selected and the applicant continues with the lender, a hard credit pull occurs.
The lender handles underwriting and determines final approval.
After final funding, the customer can use the proceeds to pay the merchant.
The merchant can also view available offer and status information in the Flexxbuy portal as the customer moves through the process.
For the broader sequence, see How It Works or How Customer Financing Works for Businesses.
Keep the Merchant's Role Simple
A business offering financing does not need its sales team to become credit experts.
Employees generally need to understand what financing option is available, how to share the application, where the lender enters the process, and which statements they should avoid making.
Merchants should not promise approval, a particular APR or financing term, final funding, or a specific lender decision.
Instead, staff can explain that financing is available, provide the application link, and allow the customer and lender to complete the financing process.
Explain the process, not the outcome.
For implementation guidance, see How to Offer Financing to Customers. Businesses comparing providers can also review What to Look for in a Customer Financing Platform.
Use the Glossary as a Practical Merchant Reference
The purpose of this glossary is not to turn business owners or sales teams into lending specialists.
It is to make the basic customer-financing vocabulary easier to recognize so merchants can explain their own role accurately and understand where the customer is in the process.
Businesses that want to see how financing can fit into their sales process can explore Customer Financing Solutions. For more on what happens after funding and how merchant payment works, see Customer Financing and Merchant Cash Flow.
Understand the Terms — Then See the Workflow
Review How It Works for the step-by-step customer financing process, or explore Customer Financing Solutions.
