As a business, offering finance is traditionally a risk that the company bears. Should a customer default on their payment or have problems paying the remaining balance, the sellers are the ones who are hit directly.
However, there are options nowadays to help unburden that risk, while still benefiting financially. This guide will take a practical look at how businesses can offer finance to customers without having to break the bank.
1. Choose a finance model
Firstly, it’s a good idea to choose a structure that aligns with your product or products price point and customer demographic.
For example, you have the BNPL (Buy now, pay later) financing options with offers short-term, interest-free installments. Interest-free credit is popular too with fixed monthly payments over a period of time, which is attractive for mid-range goods.
You’ve also got interest-bearing credit where you can offer longer-term loans where customers pay interest. This is best for high-ticket luxury items and bulkier furniture like a bed or couch.
Hire purchases allow ownership for the customer after the final installment and this is commonly used for vehicles. Invoice financing allows business customers to pay in 30-90 days which is common for those in trade services.
2. Partner with a third-party provider
As a business, you could look to partner with a third-party provider. Partnering with a specialized firm allows you to receive full payments upfront, while the provider manages the debt.
There are a number of B2C leaders to choose from, whether that’s Afterpay, Klarna or Affirm. For B2B specialists, iwocaPay and Mondu offer tailored terms for B2B transactions specifically.
You’ve also got platforms like PayPal Pay Later that integrate directly into existing checkouts and leverage higher consumer trust too.
3. Navigating regulatory requirements
Even though you might not be a bank, you must comply with the FCA rules or equivalent local bodies depending on where you operate in the world. Most merchants will only require limited permission for credit broking, as it’s secondary to their main business.
There are also plenty of new rules coming in, in regards to BNPL, where providers need to be fully authorized in able to continue operating. Merchants don’t generally need extra permissions, if only to offer third-party BNPL. However, they must use approved financial promotions.
You should also be displaying the APR, total amount payable, as well as the repayment schedule to the customer too when offering this financial model.
4. Implementation steps
Implementing these steps is the crucial part when you want to offer finance for customers to ensure no friction is experiences.
Evaluate if your AOV is high enough to justify the merchant fees and make use of plug-and-play extensions for e-commerce platforms like WooCommerce and Shopify.
Promotion is key so make sure you’re displaying ‘pay monthly’ or finance options on product pages as well as in-door signage to influence the customer’s decision before they reach the checkout stage.
Ensure your employees can also explain the difference between interest-free and low-rate loans, as well as understanding cooling-off rights.