Customer Financing For Small Businesses – For many small businesses, many of their customers pay by credit card, cash, and rarely by check. There are some small businesses that do not accept credit cards because of the fees and potential for fees.
Not accepting payments on credit closes the door to a larger pool of potential customers and sales. Instead of denying credit cards, providing credit through consumer financing or offering online terms as a payment option can help fill the credit gap. In this article, we’ll look at how both online terms and customer financing work and why you should consider it.
Customer Financing For Small Businesses
If you’re selling b2b, customer financing can look completely different than when you’re selling to consumers. In many industries, business customers are simply expected to offer online terms as a payment option. This means your customer has 30 or 60 days to pay their bill. You are essentially extending these customers a short-term credit limit and “leaving” the default risk. Managing online terms is a lot of work for your accounts receivable teams, they have to do company credit checks, decide on a general line of credit, process payments, send reminders and track late payments. There is an online term and credit management option called Resolve Pay. They take care of all aspects of AR and make your online terms risk-free with their non-administrative financing.
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How does consumer finance differ from b2b? Big box retailers like Best Buy, Target and JCPenny have branded store cards. A store card is credit offered by a retailer. These store cards are white label cards. This means that there is a financial company behind the card. The stores use the finance lender, but it looks like it’s the store that finances. Some reasons are brand and customer loyalty.
Small businesses often have a branded store card. They still give credit to customers and let them pay with their credit card. Some small businesses set up internal credit without using a credit card. It’s still store credit, but usually the customer just gets an account number.
It’s a lot of work for a small business to offer this kind of internal credit, because they don’t have to build their own financial platform. A better option for financing a service is to outsource it to a third party like Resolve Pay.
Consumer financing is a service provided by a third party. When a customer pays in cash, they have the option to pay on credit. The customer can apply to the store and get a quick credit decision. The process is automated so the merchant does not need to participate in the application process. The third party financial program will check the customer’s credit score and overall creditworthiness to determine how much credit to extend to the customer.
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Customers pay monthly according to their payment plans. Some payment plans are fee-free, while others have fixed interest rates. Depending on the small business owner, customers may have different payment options. Some plans may provide six months of credit, while others provide 12.
Small business owners will offer a financing solution based on the customer’s wants and needs. They are done when the customer is billed. There are no long-term contracts involved.
Offloading the loan application process, fundraising and administrative work frees the business owner to focus on running the business. The owner is not a finance company and will not spend much time on customer finance. It is a successful solution.
Internal financing can work well for large companies that have the resources to maintain it. For smaller companies, internal financing will be more about resources. This includes working to maintain accounts receivable, software and possibly hiring a debt collection agency. There are many other reasons to avoid in-house financing.
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Some customers will inevitably end up on their account. This leads to loss of credit. Bad debt is basically money that the company can’t get back. In other words, the balance on the debtor’s account may be destroyed or a total loss.
When you pay on credit, customers don’t pay immediately. Instead, they pay later. The difference between the purchase of a product and the first payment can create cash flow for the company. For example, supplier payment is due within 15 days, but customer payment is not due until 30 days (ie net 30) after purchase.
Allowing customers to pay on credit helps build customer loyalty. Not all companies offer credit cards. Those who do will have an advantage over their competitors. Customers see the flexibility of your payment options and know where to go if they want to pay on credit or get net terms.
5.) Outsource a labor-intensive process. Internal financing costs money and time. For smaller companies, it is very resource intensive. When you outsource to a third party finance company, they perform credit checks, payment processing and late payments.
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Check online for customer financing options such as term payment options. But in some industries, not offering online terms can hurt your sales. Resolve has often seen a 30% increase in sales when our business customers offer consumer financing in the form of net payment options (30, 60, 90 days).
We are a complete online B2B credit management and terms solution. The solution means your customers get the terms online and you get paid faster. If you’re looking for a better way to deal with the nightmare of customer credit checks, bad credit risk, payments and cash flow issues – Resolve is here to help. We believe that your business should not act like a bank until you actually are a bank. Get paid in one day by Resolve, and we let your customers pay us in 30, 60 or 90 days. No matter how your customers buy from you, e-commerce or offline, we’ve got you covered.
If you are ready to offer online terms as a payment option, Resolve Pay is the best choice.
This post is for informational purposes only and does not constitute official legal, business or tax advice. Anyone should consult their own attorney, business advisor or tax advisor regarding the matters discussed in this post. Resolve assumes no responsibility for actions taken based on information contained herein.
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Fortunately, there are many small business loan solutions available to you. Banks, online lenders and even family and friends can help you secure the cash you need to grow your business.
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