Customer Financing For Small Businesses

Many businesses engage in some form of customer financing, whether they realize it or not. When a barber accepts a check in exchange for a haircut, he is showing good faith that the customer’s check will be convertible to cash in the future. By the same turn, a contactor that invoices a client for building a new deck allows the customer time to gather money to pay for the construction, and by delaying receipt of payment, he is effectively financing the customer’s purchase. These and other forms of consumer financing allow customers a measure of flexibility without which they may be unwilling or unable to do business.

The reason customers need flexible payment options is that most consumers have one or more debt obligations that take up a significant portion of their disposable incomes. Common forms of debt include mortgages, car payments, student loans and other financed obligations for which a person has agreed to make payments over time in order to acquire something they need today. As a result, for many businesses, potential customers may not have funds available to pay for goods and service at the time of purchase. By extending credit to cash-poor consumers, businesses that offer customer financing can avoid losing out on sales to clients who may desire their services but are unable to pay for them all at once.

Delivering a product prior to receiving payment opens the possibility that the business will not be compensated for their efforts. Before extending credit to customers, companies that wish to help consumers pay for goods and services must consider the level of risk they are willing to accept.

Fortunately there are options when it comes to customer financing. Firms that wish to accept 100 percent of the risk entailed when offering credit to consumers should be diligent in performing credit checks and should lay out clear expectations about payment schedules and any penalties that may result from a missed payment. For companies that want to minimize their exposure to the risk of non-repayment, partnering with lending institution can be a good way to avoid losses incurred when customers fail to uphold their part of the sales agreement. For a fee, banks and other lenders can provide a number of services that benefit both the seller and the buyer in credit transactions. By outsourcing credit concerns to lenders, firms allow their clients a fast application process and an instant approval or denial of credit. Additionally, the lender will typically carry the majority of risk of loss due to unpaid invoices.

Customer financing is a great way to avoid lost sales and to build consumer loyalty. A relationship built on trust and consistent fulfillment of obligations creates a stable business environment that allows companies to thrive.


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