Posted by Juliette Riddle
Uploaded 115 days ago
Customer Financing For Your Home Services Business
Offering In-House Customer Financing vs. Third Party For Your Customers
Have you ever lost a customer or lead because of their inability to pay for your service? They’re window shopping, or on the fence about making a purchase, but ultimately decided to “wait” because they don't have the immediate cash flow to cover the hefty upfront costs?
Customer financing helps business owners that regularly encounter these situations. It’s a great option to help customers make monthly payments on large purchases over time, rather than losing their business because they can’t afford to pay the initial costs. Many companies are investing in customer financing to create new opportunities for themselves and their customers, keeping them vested and loyal. Before making the jump, it’s important to understand the pros and cons of customer financing, and ultimately if it’s right for your home services business.
Once the application process incomplete, If approved, customers can receive financing immediately and can pay back the total amount over time. For example, if the bill for fixing an AC unit is $1000, then the customer could make monthly payments of $100, for 10 months.
Offering financing solutions help cultivate and solidify your consumer base because they receive a memorable customer experience. Not many businesses are willing to go the extra mile like this. It’s been said that if a customer is offered finance and payment options, they will be more willing to spend more. Meaning that fixing a simple AC unit can increase to replacing the old unit with a newer model.
Customer financing gives you an advantage over the competition.
However, It’s important to understand if customer financing works for your business model.
Offering a customer financing program at first glance seems like an ideal opportunity to convert shoppers into buyers, build customer loyalty, and gain an edge over the competition.
There are several financing options available such as, in-house customer financing, or using a third party service. While each has its benefits, they also have their downfalls. It’s best to perform a cost-benefit analysis and make sure that you’re not taking on more than you can handle.
Financing consumers on your own can be liberating. It cuts out the “middleman” third-party providers, and additional transaction and monthly merchant fees.
For example, PayPal doesn’t charge monthly service fees to merchants.
At the same time, you’re dealing with all of the initial upfront costs. You’re responsible for collecting any and all missed payments. With your busy work schedule, performing credit checks, keeping track of clients’ balances and due dates, and making collections call for outstanding debts is extra stress. You can also go the route of hiring someone in-house to manage the financing program, but that presents another list of issues in finding a qualified candidate.
To add, not having full payments upfront means initially having less money in your pockets. In time this will change, but the question of “does your business have the financial backing to sustain” comes into play. You’re personally assessing if the customer is trustworthy or a risk—even if their credit score isn’t sparkling.
Using a third-party financing company will alleviate much of the burden and legwork needed to successfully finance your customers. Also, it takes the legal ramifications off of your plate. The service provider finances the transaction and charges customers a monthly interest fee. The industry-standard ranges from 1-6% (varies depending on the lender and credit score). Merchants are charged a small amount for transaction fees and monthly service charges upwards of $40+. But when you think about it, paying a small monthly fee isn’t all that bad. Numerous providers cater specifically to the home services industry.
One struggle that many small business owners deal with when it comes to using third party financiers is approving customers with spotty, or low credit scores. This can be due to multiple reasons including, having a poor credit history or bankruptcy. It’s becoming harder to get some new customers financed because they’re considered a credit risk, yet it puts you back to square one. So where do you go from here?
If you own a new or young home services business, initially diving into the customer finance sector can be stressful. Lenders are more likely to charge you a higher Interest rates are high because you’re less established. It takes an estimated 2-3 years for a new business to break even. This can trickle down to your customers receiving higher rates and fees as well because of this.
However, don’t lose hope if you feel that providing financial assistance to your customers will be beneficial and are willing to take the risk. There are providers available that are willing to take the chance on newer businesses. Once you’ve proven that you can handle the load, then you can negotiate lower interest rates and monthly service fees.
Customer financing is growing in demand throughout today's market place. With the increasing pressure to scale businesses as fast as possible, it is a large jump for an operation of any size, especially in the home services industry. No one can decide if creating a finance program is right for your business, but you.
Do your homework first and assess the cost benefits. Overall, is it more of a gain or a burden? Research financing companies on Google. Some lenders are willing to work with small business owners, offering specialized promotional rates. Reach out to other business owners that you trust and ask them about their experiences, as well as, for references. Offering customer financing to your clients can open the doors of opportunity and take your business to the next level. But remember, with great power comes great responsibility.
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