In-House Customer Financing Is Hot (Or Is It?)

Mechanic Showing Customer an Invoice

If you have a business that sells consumer goods or services, it’s undeniable that customer financing can be an important ingredient for the success of your business. Some businesses can attribute 20 to 40 percent of their sales to financing.

There are four key reasons that customer financing is important.

1. Financing gives customers more time to pay for major purchases
2. Financing will increase the average sales amount
3. Financing provides customers with more choices
4. Financing allows customers to keep free their existing cash reserves and credit cards

Believe it or not, there was a time, not too long ago, when accepting credit cards was not an easy choice for businesses to make. There was the cost of the equipment to consider not to mention the cost of the transaction itself. Over the course of years, the decision became much easier as banks opened up credit to consumers and customers demanded they be provided that payment option. Businesses that held out starting to see a significant loss in revenue.

A similar track is taking place with regards to customer financing. The increased demand can be attributed to the decrease in consumer liquidity as well as plateauing limits on credit card spending limits. Customers now what additional options for paying.

But as is the case with merchant services, not all businesses are considered equal. There are the “desirables” and the “less desirables”. To further complicate matters, the list is constantly changing.

So, what business types are hot and what business types are not?

Hot

  • Medical/Dental Services- the uninsured and under-insured are leading the way in this category are are the increasing overall costs of services
  • Hospitals- With higher co-pays, hospitals are being forced to work out payment plans or take collect action to retrieve money owed them
  • Professional Services- An untapped market particularly in the “must have” categories.
  • Home Improvement- With house values on the rise, homeowners are reinvesting back into their home
  • Vocational Schools- More people are looking to re-position their careers and these type of changes can cost thousands of dollars
  • Most Consumer Retail Goods- Most retail categories are still hot but the competition is fierce and the lenders are becoming more selective

Not

  • Jewelry- For jewelry stores, fraud and high default rates have made the lenders back away in large numbers.
  • Auto (tires, wheels, rims & accessories)- Still have options but they are dwindling for the under $1 million per year business
  • Power Sports- A difficult customer base from a credit standpoint to finance
  • Cell Phones- Too disposable. Financing options all but fried up.
  • Firearms and Pets- Too controversial.
  • Retail Businesses That Do Less Than $1 Million Per Year- Vulnerable to fraudulent transactions and business shut down.

Don’t get me wrong, opportunities still exist even in the “Not Hot” categories, but the waters are a bit rocky and nailing down the best customer financing options available are worth the trouble. Without financing, the road to growth can be difficult.

The bottom line is that many consumers simply don’t have the wherewithal to make a major purchase without the help of financing. And many of those consumers are unable to qualify for conventional lending products and need help beyond what the banks can offer. A multi-lender platform can accommodate a wide array of credit profiles and help a business realize its growth potential.

 

49545_1452068209_3484_q

Bob Lovinger is the President of Flexxbuy, a leading US broker in the area of customer financing. Flexxbuy features a number of multi-lender platforms that can accommodate most business verticals and their customers covering a wide array of credit profiles.