Did you know that only 48% of small businesses have their financial needs met?
Unfortunately, this also means that more than half of your customer base is not in an optimum financial situation at the moment — which will ultimately make them more hesitant to do business with your company.
To make matters worse, many of these buyers will have already tried to attain funding elsewhere, only to be denied either in full or in part. Others simply never apply for funding over fears of being denied (and wasting valuable resources in the process).
In any case, it all results in their hands being tied — and your company losing business because of it.
This is why many B2B companies take it upon themselves to offer financing directly to their cash-strapped customers.
What is Customer Financing?
Customer financing is a funding option where buyers pay off purchases over time, while receiving the purchased products or services immediately.
Typically, the process for obtaining financing goes as follows:
- The customer applies for financing at or before checkout.
- The financing company approves the application and sets terms for the agreement.
- The financier pays the provider the amount of the buyer’s purchase.
- The provider delivers the product or service to the buyer.
- The buyer pays the financing company back over time, plus fees and interest as agreed.
B2B companies have traditionally offered in-house financing solutions to their customers, themselves. Providers usually allow buyers to extend terms out to 30, 60, or 90 days — while setting interest and other terms based on the circumstances.
Today, many providers are partnering with third-party companies to evolve beyond these traditional B2B net terms. Buy Now, Pay Later (BNPL) providers like Credit Key now allow providers to extend a financing option that’s much more in line with the modern B2B buyer’s needs and expectations.
The Key Benefits of Offering B2B Financing
Regardless of how you offer financing, doing so will bring a number of benefits to your business.
More Customer Buying Power Means More Business for Your Company
As we said at the start, many of your customers simply don’t have the buying power to purchase what they need from your company without financing. This causes many to be rather frugal with their spending — and prohibits others from making any purchases, at all.
That said, offering financing as needed to your customers effectively puts more buying power in their hands right when they need to make a purchase. This makes your most cash-strapped customers more likely to convert — and also allows your regular customers to increase their spending without endangering their cash flow.
Case in point:
- Credit Suite’s conversion rate jumped 14% after revamping their financing options
- Restaurant City’s average order values spiked over 600%
- WebstaurantStore’s AOV shot up 841%
Better Customer Experiences Means More Loyalty and Referrals
Providing a buyer-friendly financing option will enhance your customers’ overall experience with your brand.
If you’re able to continually provide for their needs (financial and otherwise), they have every reason to keep coming back to your company. This can also incentivize your satisfied customers to refer your company to others in their network — especially those who may be in similar financial situations.
If customers need to talk to sales, fill out a lengthy credit application to make a purchase, there’s a good chance they won’t convert. To increase conversion rates, the goal should be to find out what your customers need.
- Credit Key CRO, Eric Allen in his Executive Conversation with DigitalCommerce360. Read more here.
What to Consider Before Offering Financing
To be sure, if you don’t offer some type of financing to your customers, you’re missing out on a ton of potential business.
Still, a lot goes into making sure the financing options you provide are optimized for both your customers and your team. Knowing what it all involves is crucial to conducting a cost-benefit analysis of your financing initiatives — and determining whether or not to enlist the help of a third-party provider.
Your Team’s Operational Capacity
For starters, you need to understand your team’s capacity for managing customer accounts over time.
Think about everything that’s involved here, such as:
- Receiving and processing applications
- Collecting payments and fees from borrowers
- Providing customer service and support regarding financing
Consider whether your team can handle the additional workload as is — or if doing so might stretch them too thin. Similarly, assess the need for more training — and, again, if this additional training might distract your team from their current workload.
And, of course, you need to know that you’ll be able to actually afford to finance your customers’ purchases while staying cash flow positive, yourself.
Your Customers’ Circumstances
Understanding your audience’s financial circumstances is vital to offering a practical financing solution to them.
You should have a general idea of how much your customers need to finance, and how long they need to pay off their purchases. This will help you identify the terms you’ll need to offer for them to actually take advantage of your financing in the first place.
(For example, if most of your customers need more than 90 days to pay off their purchases, there’s not much sense in offering net-30 terms…right?)
Your customers’ financial circumstances will also help you assess the risks involved in funding their purchases — and allow you to set more personalized credit limits for your individual customers.
Integration Into the Customer Experience
Your customers will only take advantage of your financing option if:
- They know it exists
- It's easy to utilize
So, you need to have a plan in place to make it all happen.
First, consider how you’ll promote the offer to your clients. What will your message be? What channels will you use? How can you integrate this promotion into your current marketing campaigns and sales processes?
Yes, you’ll likely generate some additional business by quietly introducing a new financing option to your customers.
But, a comprehensive, strategic approach will be necessary to experience the full range of benefits we’ve discussed. To this end, knowing how to promote the new service in a way that your audience appreciates is key.
You also need to make it as easy as possible for your customers to use your new financing service appropriately. This will involve:
- Equipping your in-store staff to facilitate the application process
- Allowing online customers to facilitate the process on their own
- Enabling digital and in-person customers to manage their account as needed
Which Financing Option is Right for Your Business?
Depending on the above, you may choose to offer financing directly to your customers, or via a third-party partner.
Let’s now take a look at the pros and cons of each route.
Pros and Cons of In-House Financing
Pro: Spur More Sales and Revenues
Perhaps the main reason you’ll decide to offer financing to your customers is to sell more to them.For one, you’ll be generating more conversions from those who otherwise wouldn’t have been able to buy from you at all. You’ll also be better able to upsell your customers by either offering them higher-volume orders, or higher-value products and services.
Con: Delays in Actualizing Revenues
Since your customers will be paying off their purchases over time, it will take longer for you to actualize revenues that may have been earned months ago.Though you may be generating more business in the long run, you’ll also have less capital on-hand to reinvest into your business. Worse yet, your yet-to-be-realized earnings will be meaningless should your business face a downturn or other emergency situation.
Pro: Full Control
If you’ve decided to offer financing to your customers directly, you’ll be in complete control over the initiative.This means you’ll have the power to set financing terms, manage your customers’ accounts, and optimize their overall experience with your brand as you see fit. You’ll also be able to keep the entire process on-brand — as opposed to bringing a third party into your customer engagements.
Con: Resource-Heavy
As we discussed, putting all this together will require its fair share of time, money, and other resources.If, for whatever reason, you don’t have the capacity to finance your customers’ purchases or even manage their accounts, you might find the initiative to be more trouble than it’s worth. In worst-case scenarios, you may end up wasting resources that would have been better spent improving your core products and services.
Pro: Additional Revenue from Interest
Offering in-house financing will lead to an additional revenue stream in the form of interest payments.This is pretty straightforward:
In addition to generating more revenues directly from sales, you’ll also be bringing in some additional cash whenever you finance a customer’s purchase.
Con: Risk of Non-Payment
…that is, as long as they actually pay on time.
And it’s your responsibility to make sure they do.
Yes, it’s technically their responsibility…but if a customer fails to pay on time, it’s on you to begin the collections proceedings. Depending on the situation, this can be a long, drawn-out affair that in some cases will be barely worth pursuing.
Pros and Cons of Financing via Third-Party Providers
| (Note: Since all third-party financing companies are created differently, the following varies by provider.) For more information on third party provider in general - please checkout this payments buyers' guide. |
Pro: Spur More Sales and Immediate Revenues
Offering financing in any way — even via third-party — will increase your customers’ ability and willingness to spend with your company.
A dedicated financing company will also be better able to provide highly-personalized terms to your individual customers. In turn, your buyers can maximize their spending — and do so without leaving their financial comfort zone.
And, perhaps most importantly:
You’ll get these additional revenues immediately, as opposed to over the course of the following months.
Con: No “Bonus” Revenue from Interest
A minor downside to utilizing a third-party financing partner is the inability to collect additional revenues from interest payments.That said, many of Credit Key’s customers admit that these additional revenues were rarely worth the operational costs of their in-house financing initiatives. In other words, this is likely a non-issue for your company.
Pro: Financing Company Manages All Processes
Working with a third-party financing provider means handing the reins over to them, nearly in full.
The provider will be responsible for processing applications, collecting payments, and managing the customer experience with regard to financing. So, you’ll be delivering additional value to your customers without adding more to your team’s plate.
Con: Can Be Hands-Off for Your Team
In handing off any internal process to a third party, you risk things going wrong that are beyond your control.And this can certainly be the case with third party financing options— especially with so many nascent companies emerging as of late.
But this only becomes a problem if you completely hand things over to the financing company, instead of approaching things like a true partnership. And, if you find that your financing partner doesn’t see things the same, it’s a good sign that you should part ways.
Pro: Financing Company Assumes Financial Risk
In assuming control of your team’s credit processes, your financing partner assumes the financial risk of non-payment from your customers.
So, when your customers finance a purchase, you get paid no matter what. And, if a borrower is unable to pay off their debt, it will still be your financing partner’s responsibility to collect.
Con: Curse of the Fine Print
Unfortunately, there will always be those scammy pseudo-companies looking to make a quick buck off of both your customers and your business.When partnering with a third-party financing company, due diligence is critical. Again, with so many new companies popping up out of nowhere, you need to find a financing partner with a solid track record of helping teams and buyers like yours succeed.
Offering Buy Now, Pay Later Financing with Credit Key
Credit Key’s B2B Buy Now, Pay Later financing services were created with both your customers and your business in mind.
We deliver the key benefits of modern B2B BNPL solutions — while also working to fully integrate our services into your processes, and your customer experience. On top of providing buyer-friendly financing options and streamlined processes, we also work closely with partners to promote Credit Key throughout the sales funnel.
The result:
A comprehensive, branded financing service that meets the needs of your individual customers — and brings more business to your doorstep with minimal effort on your part.
Topics from this blog: B2B Payments Finance