Studies show that most Americans aren’t in a position to take on a surprise $500 expense in an emergency. And if that’s the case, imagine how few consumers are likely to make impulse purchases at or near $500. Offering financing options to your customers allows them to plan for their purchase and take on the cost of your product a little at a time. And it works — evidence shows that offering to finance can increase customer spending. But with so many different consumer financing options on the table, how do you know which ones to offer?
The Most Common Financing Options
Financing is like a payment plan for your customers. Although you receive the money upfront, they only have to pay a little at a time. It’s a win-win scenario. There are two different ways to offer customer-centric financing options. One way is to collect your customers’ credit information yourself, lend them the money out of your business’s funds, and allow them to repay over time. However, this can be problematic because it forces you to lend money to your customers and chase that money down if it doesn’t get paid on time. You’ll also have to deal with the usury and debt collection laws in your state. You will also need your own in-house loan office to make this work.
The more popular option is to sign up with a third-party lender. You can evaluate countless lenders and decide on the one — or ones — you’re willing to use with your customers. Each loan company has its own policies on the minimum amount your customers have to spend, repayment schedules, interest rates, and any fees the company may charge your business.
Factors When Choosing the Best Options for Your Brand
With so many business financing options on the market, it can be difficult to narrow your choices down. Several factors should be considered when deciding.
If your customers are low-income, very young, or very old, they may not have good credit. In these cases, you’ll want to prioritize lenders that are willing to work with customers who have low credit scores. On the other hand, if you work with Fortune 500 companies, credit probably might not be an issue for you. In this case, you can work with lenders that have a high credit threshold.
The next thing you’ll want to consider is what products you offer and what products customers will ask to finance. Some lenders have a minimum spending threshold. If they won’t lend to customers who spend under $1,000 and your products are all in the $500 range, your financing options won’t help customers who purchase fewer than two items. Look at the average amount of money customers spend with you at a time, and use that average to help determine what minimum your customers who finance should be held to (if any). Then, make your choice accordingly.
If you have an established business, you may be able to survey your existing customers to see which lenders they have a good history with. Sometimes, customer preferences can help you to identify factors that you may not have otherwise considered.
Pros and Cons of Offering Multiple Financing Options
Of course, you can offer multiple financing choices to your customers. This may be important if you sell both; directly to consumers (B2C) and directly to businesses (B2B). But before you sign up for ten different financing options and let your customers decide which one they want to use, you’ll want to weigh the pros and cons of offering multiple options.
Offering One Financing Option
One upside to offering a single financing option is that your staff can become experts at that option and its rules. It’s also relatively easy to advertise one financing plan on your website, either at the checkout screen or beforehand. This helps reduce sticker shock by letting customers know they can choose to finance their purchases.
The biggest downside with offering one financing choice is that if a customer doesn’t get approved for financing, there’s no recourse to help them out.
Offering Multiple Financing Options
The advantage of offering multiple financing options is that it can benefit different types of buyers. Customers with good credit can use low-interest financing options, while those with low credit scores can still find a way to finance their purchases. This approach is also useful if you work with individual customers — who make relatively small purchases — as well as businesses that may put together larger orders. You can offer different financing options based on their estimated spending total.
The biggest drawback to this method is that it could lead to decision paralysis — which happens when people have too many choices, or the choices they have are too complicated. When this happens, people tend to procrastinate on making any decision. By offering multiple financing options, you could turn your customers away from using any financing at all. Another downside is that your customers may get declined for one financing option and then apply for another. While this could allow them to get approved with one of your suggested lenders, it also means multiple credit checks in a short period of time, which can have negative ramifications for your customers.
Skeps Turns Financing on Its Head
Choosing a good, customer-centric financing option to offer through your business can be a headache. But Skeps turns that process upside down. Working with the top lenders, Skeps can help your customers find the best lender for them with a single application and credit check. The only thing your brand needs to keep track of is how easy it is to work with Skeps.
To learn more about how we can eliminate decision paralysis for you and your customers, contact us today.