How to offer customer financing to grow your field service business
What is customer financing?
Customer financing, or consumer financing, is a type of financing offered by small service businesses to their customers to help them pay for the services provisioned over time. This can be in the form of credit, loans, or other financing options. Customer financing is often used to help customers pay for services that they may not be able to afford up front. It can be a useful tool for businesses to increase sales and customer satisfaction as it allows customers to make purchases they may not have been able to make otherwise. Though, it is important for businesses to carefully assess their readiness to offer financing and to develop a plan for managing the financing in a responsible and sustainable way.
How does customer financing work?
Customer financing works by allowing customers of service businesses to pay for services over time, rather than paying for them up front. This can be done through various financing options, such as credit, loans, or payment plans.
To use customer financing, a customer typically applies for financing through the business or a third-party lender. The business or lender will assess the customer's creditworthiness and determine the terms and conditions of the financing (e.g. interest rate, repayment period, etc.). If the financing is approved, the customer can then make the purchase using the financing option. The customer will then be required to make regular payments to the business or lender until the financing is paid off.
There are different types of small business customer financing available such as installment loans, lease-to-own, and deferred payment plans. Each type has its own specific terms and conditions, and it is important for businesses and customers to carefully understand and agree to these terms before entering into a financing arrangment.
What are the benefits of customer financing?
There are several tangible benefits of customer financing for both businesses and customers alike:
- Increased sales: Customer financing can help businesses increase sales by offering customers a way to make purchases they may have not been able to make otherwise. This is especially useful for larger purchases or services that may be outside of a customer's budget.
- Customer satisfaction: By offering customer financing, businesses can help their customers afford the goods or services they need or want, which can lead to increased customer satisfaction.
- Flexibility: Customer financing allows customers of small businesses to spread the cost of a purchase over time, which can be more manageable for some customers.
- Easy application process: Many customer financing options for small businesses have an easy application process, which can be convenient for customers.
- Builds credit: For customers who are able to make timely payments on their financing, it can help them build or improve their credit score. This can be beneficial for customers who may not have a strong credit history or who are trying to rebuild their credit.
- Competitive advantage: By offering customer financing, businesses can differentiate themselves from competitors who do not offer this option, which can be a competitive advantage.
However, it is important for businesses to carefully assess their readiness to offer customer financing and to develop a plan for managing the financing in a responsible and sustainable way.
Is your service business ready for customer financing?
To determine whether your service business is prepared for customer financing, it's important to consider the following:
- Alignment with business goals: Is offering customer financing aligned with the overall goals and strategy of your small business?
- Financial capacity: Does your small business have the financial capacity to handle the additional risk and responsibilities that come with offering financing?
- Creditworthiness of customers: Does your small business have a customer base with good creditworthiness, or will it have to take on higher-risk customers in order to offer financing?
- Financing option: Has your small business researched and compared different financing options (e.g. in-house financing, third-party financing, etc.) to determine the best fit?
- Risks and challenges: Has your small business considered the potential risks and challenges of offering financing (e.g. default risk, operational complexity, regulatory compliance, etc.) and developed a plan to address them?
- Systems and processes: Does your small business have the necessary systems and processes in place to manage the financing (e.g. application process, credit checks, payment tracking, etc.)?
Once you've carefully evaluated the aforementioned considerations as to whether customer financing is an appropriate solution for your small service business, it's important to then develop a financing plan.
How to develop a customer financing plan as a small business
When developing a financing plan, it's important to understand that financing is an iterative process that requires monitoring over time. Though often it begins in a cycle much like the one below:
- Identify your target market: Before you can develop a financing plan, you need to know who you are trying to reach. Consider factors such as your customer's creditworthiness, their willingness to pay, and the terms they are likely to find attractive.
- Determine the terms of your financing plan: This includes things like the interest rate, repayment period, and any fees or penalties.
- Choose a financing partner: You have several options when it comes to financing partners, including banks, online lenders, and specialty financing companies. Consider factors like the cost of borrowing, the reputation of the lender, and the level of support they offer.
- Communicate the details of your financing plan to your customers: Make sure your customers understand the terms of your financing plan, including the interest rate, repayment period, and any fees or penalties.
- Monitor and adjust your financing plan as needed: As you start to offer financing to your customers, pay attention to how well the plan is working. If you are not seeing the results you want, consider adjusting the terms of your financing plan to make it more attractive to your customers.
What are the pros and cons of customer financing?
While consumer financing may sound like a no-brainer as a small business owner, it's important to evaluate the pros and cons of customer financing. While they'll ultimately be unique for each business, the list below covers the most common:
Customer financing pros
- Increase sales: Offering financing options can make it easier for customers to make a purchase, which can lead to increased sales.
- Builds customer loyalty: Customers who take advantage of financing options may be more likely to return in the future.
- Improves cash flow: Customer financing can help you receive payment up front, which can improve your cashflow.
Customer financing cons
- Credit risk: There is always some risk that a customer will default on their payments, which can lead to financial losses for your business.
- Administrative burden: Managing a financing program can be time-consuming and may require additional staff or resources.
- Cost of borrowing: Depending on the terms of your financing program, it may be expensive to offer financing options to your customers.
How to use financing to grow your field service business
As noted throughout this article, customer financing is a great lever for field service businesses to increase their sales while increasing customer satisfaction and retention. Though in order to effectively scale a business leveraging customer financing, it's important to employ the following tactics:
- Educate your sales staff: Make sure your sales staff understands the details of your financing program and can effectively communicate the benefits to your customers.
- Promote financing options prominently: Consider adding information about your financing options to your website, in-store signage and other marketing materials.
- Offer promotions or discounts for financing: You can incentivize customers to choose financing by offering promotions or discounts on financed purchases.
- Make the application process easy: The easier you make it for customers to apply for financing, the more likely they are to take advantage of it. Consider offering online applications to streamline the process.
- Consider offering financing options at the point of sale: If you have a physical storefront, consider offering financing options at the point of sale to make it easier for customers to take advantage of financing. Make sure your estimators have all of the financing information with them when they meet with the customer to go over your financing options.
By promoting customer financing effectively, you can make it more attractive to your customers and increase the number of financed purchases.
Can your current business systems handle the growth that financing will cause?
In sum, there are advantages of offering customer financing, but also some considerations to be made and pros and cons.
Kickserv offers a field service customer financing solution through Klarna, a financing financial tech service. With Klarna, you can offer pay in 30 days, interest free installments or more traditional multi-year financing options.
The benefits of Klarna to field service companies include:
- You can close on proposed projects that customers might normally wait to take on. This could increase closed business by 10-15% or more.
- Increased size of projects because customers now have flexibility in when and how they pay you.
- You don't have to worry about collections or late payments. You get your entire payment up front while Klarna handles the collections and potential late payments from customers.
- Anytime you can provide more flexibility and support to your customers, you deepen the relationship with your customers and build loyalty.
Learn more about Kickserv's field service financing solution by reviewing this article detailing the functionality.
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