Benefits and Drawbacks of Offering Consumer Financing

Benefits and Drawbacks of Offering Consumer Financing

If you sell high-ticket items, one way of powering sales is by offering on-site financial assistance. Consumer financing is highly convenient and can drive sales. That said, there are negatives to offering financial services that must be considered. Here’s a quick overview of what comes with the territory.

Benefits of Offering Consumers Financing

One plus of helping buyers with the financial end of purchases is that you receive upfront payment. Third-party financing organizations give retailers an immediate lump sum in exchange for a cut of their sales. This agreement eliminates the risk that a customer disappears and you get nothing.

Another advantage is that it places you in competition with big-box retailers. Most of these stores offer branded cards and other attractive types of credit. Providing the same or better advantages has the potential to draw customers away from impersonal megastores.

The ease of financing at the point of sale increases the odds that customers make a purchase. Patrons who leave in search of a fiscal solution might rethink what they’re doing. Lock in their decision before they reconsider.

Vitally, consumer financing creates additional opportunities to upsell patrons with add-ons and other upgrades. The relationship between buyer and seller continues and deepens as you work together to complete the financing process.

Drawbacks of Offering Consumers Financing

The bad news is that borrowers sometimes do not satisfy their debts. You’ll be especially at risk if you have narrow profit margins. Should too many customers default, the third-party platform you’ve been working with might suddenly terminate its contract, leaving you in a highly vulnerable state.

It takes time to integrate customer financing into a business. Once done, sales representatives are going to be spending even more time working with specific customers. You may need to hire additional employees to assure shoppers continue receiving the attention they need.

Lastly, your business will suffer from lower cash flow, as you are no longer getting money from direct sales. Dollars from purchases would otherwise be deposited right into your business account. Instead, you must now wait until the company you’re collaborating with processes what you’ve sent and works its way through its fulfillment department.

It’s easy to see why so many companies offer consumer financing. As an additional service, it has the potential to generate transactions and boost customer relations. There are also downsides. Spend time weighing the positives of these arrangements against their negatives before electing to get involved in customer credit.