If you are like most business owners, you are consistently looking for business growth strategies. Consumer financing is a key growth strategy that you may not have considered. These are answers to a few questions you may have about this strategy.

What Is Consumer Financing?

You may have applied for a store credit card, such as a Walmart, Target, Sears, or Home Depot card. These consumer credit options allow your customers to purchase and receive their goods and services immediately and pay for them over time. Most companies work with a finance company that distributes the full purchase price to you immediately, less a small fee, and charges the consumer directly.

What Are the Advantages?

As a small business owner, you are probably looking for ways to increase your revenue and customer base. Offering financing to your consumers encourages larger one-time transactions, increases the number of your sales, provides you with the full sales amount upfront, and attracts new customers. This strategy often also increases customer loyalty and reduces the time between sales.

Are There Disadvantages?

There are a few disadvantages you should be aware of. First, you could end up responsible for your customers’ bad debts. Therefore, you should always conduct thorough credit checks. Often, your finance company will take care of this. If you choose to offer the financing yourself, and not go through an established financier, you may experience increased accounts receivable. Also, your cash flow may initially be affected if you are offering this service to your clients.

However, working with an established finance company can reduce some of these disadvantages.

What Does It Cost to Work with a Financier?

Your customers will pay a finance or interest fee on any purchases they charge. However, you will also be charged a few fees. Most consumer finance companies charge a transaction fee of up to six percent, but they often add on a set fee of $0.20-30 per transaction. Other finance companies may charge a flat monthly fee of up to $50. This fee may be adjusted based on the number of financed sales.

Therefore, before signing a long-term contract, you may consider trying this option for a few months and weighing the costs and benefits.

Which Businesses Benefit Most?

Not every company will benefit from offering consumer credit. In fact, you will benefit most if your company sells high-dollar items, such as appliances, furniture, building materials, or other big-ticket items. However, clothing, department, and specialty stores often experience significant advantages through consumer credit programs.

As you consider adding consumer financing to your business growth plan, you may survey your customers and target market to determine whether they would be interested in participating in such a program.