How to Offer Customer Financing & Buy Now, Pay Later in 5 Steps

In the world of commerce, sales are typically made in three ways: credit sales such as debt or borrowing, repayment with cash on delivery (COD), and financing through installment payments. This post walks you through how to set up a customer financing program for your online store.,

The “how to offer financing to my customers construction” is a guide on how to offer customer financing and buy now, pay later. The article also includes 5 steps that can be taken to make the process easier for your business.

Consumer financing is when a customer pays for a product or service in installments or with store credit rather than in one lump sum. Finance may be provided by the company directly or via a third-party financing partner such as Klarna, Affirm, or ViaBill.

This kind of financing is known as POS loans since it occurs at the point of purchase or sale (POS). Providing POS loans may help enhance sales, conversions, customer loyalty, and repeat business.

In five easy steps, here’s how you provide consumer financing:

1. Confirm if customer financing is appropriate for your company.

Customer financing is complicated, and it’s crucial to know whether it’s right for your company and customers. Customer financing is aimed to turn a browser into a purchase from the retailer’s standpoint. It’s aimed mostly at prospective clients who are interested in purchasing products or services from your company but are put off by the upfront payment.

Customer financing was originally utilized to assist consumers in purchasing costly items such as vehicles and gadgets. However, it is now a viable choice for a wide range of transactions, big and small. Customer financing may help you raise average order value (AOV), convert more customers, and build customer loyalty. According to a PayPal research, firms who promote pay-over-time messaging might experience a 56 percent rise in AOV.

How Does Financing Affect Customer Service?

Most financing alternatives (particularly for online shops) are easy to use, take just a few minutes to complete, and provide payment flexibility, resulting in a favorable client purchasing experience.

A consumer typically applies during the checkout process. They pick the financing option, which is usually either credit or debit. The majority of applicants will be accepted in a couple of seconds.

The main idea

Some consumer financing schemes need a credit check to accept clients, but the majority depend on a soft credit check—or no credit check at all—and funding will have no effect on the applicant’s credit.

The consumer will choose a payment plan after they have been accepted. Some companies, such as Klarna, provide numerous payment plan alternatives that cover different time periods and have variable monthly and yearly percentage rates (APRs).

Other suppliers, on the alternative hand, will provide the current APR, loan duration, and monthly payment amounts with no other possibilities. Many point-of-sale finance providers offer interest-free, fee-free borrowing. Buy now, pay later is a term used to describe these forms of installment payments (BNPL).

Purchase Now and Pay Later (BNPL)

Buy Now, Pay Later is a kind of consumer finance provided by shops via a third-party that enables customers to pay for items over time in interest-free monthly payments.

The consumer may make a down payment on the purchase (if applicable) and take the merchandise home or wait for shipment after picking their plan and agreeing the conditions. They’ll then be accountable for making timely payments in accordance with the lender’s guidelines until the item is paid in full, plus interest.

Assess if your consumers will benefit from the service before committing to in-house finance or a customer financing partner. POS financing may not be a suitable match if your regular clients do not qualify or if the interest rates are too high. When assessing your consumers’ demands, ask yourself the following questions:

• Can your clients meet the requirements? Some conventional lenders insist on consumers being prime or prime-plus borrowers. This usually entails a credit score of at least 650 and the absence of recent bad credit events such as bankruptcy or foreclosure. Low credit customer financing and no credit check customer financing (such as BNPL) are also available, however they may be more costly for the merchant.
• Are there any budgetary constraints? Some finance services, however uncommon, only provide financing to consumers who make purchases of $1,000 or more, while others have significantly lower order minimums. Examine if the transaction minimums of each supplier are compatible with your items and AOVs.
• Will your clients truly take advantage of the financing? It’s pointless to provide a consumer financing option if your customers don’t appreciate or utilize it. Customers may be hesitant to join if the financing platform charges fees, needs a strict credit check, or does not provide competitive interest rates.
• How much does it cost you to finance your customers? Choose a client financing option with low rates to keep your consumers loyal. The majority of client financing companies charge APRs ranging from 5% to 20%, but some reach as high as 30%. The greatest deals include 0% financing with no fees.

How Does Financing Affect Retailers?

Retailers that use a third-party platform to provide consumer financing get the whole purchase price up front, with the exception of a regular transaction charge that is the same as or slightly higher than a credit card processing cost. Retailers are additionally protected against nonpayment and fraud by POS finance partners, who provide easy interaction with major POS and ecommerce systems.

Businesses that provide in-house financing, on the other hand, only receive the down payment at the time of purchase and must handle collections as part of their accounts receivable. In-house financing exposes merchants to more risk and might obliterate a company’s slim profit margins. It makes sense for most small firms to work with a third-party finance platform.

Accepting credit cards is another simple approach to enable consumers finance things themselves if the expense of supplying client financing is too high. Credit cards and other merchant services are flexible enough to connect across all of your sales platforms, not just because they provide consumers with an easy method to make transactions.

2. Choose the kind of financing you’ll provide.

Determine what kind of program to give your consumers after you’ve decided that point-of-sale financing will benefit them. Customer financing might be in-house, meaning the company finances it, or it can be given via a third-party platform such as Afterpay or Klarna. Running credit checks, giving loans, and handling payment collection in-house entails a higher level of risk and legal responsibility when it comes to consumer credit information.

Implementation, scalability, pricing, and risk all play a role in determining the best sort of funding for your company. When deciding on the sort of consumer financing arrangement that’s best for you, keep the following considerations in mind:

• Implementation: The greatest consumer financing options are simple to set up and don’t need extensive personnel training. Financing should also be simple for your clients to understand and not obstruct the checkout process. Remember that in-house financing will almost certainly need expanding your accounts receivable staff.
• Scalability: Customer financing should, in theory, assist you in increasing revenues as you expand across all platforms. This covers your physical store, online store, mobile events, and pop-up shops. If your company can’t grow on its own, make sure the funding platform has the capabilities it needs to expand.
• Cost: Merchants pay a portion of each funded transaction to third-party financing businesses, which means the service may eat into a company’s profits. However, since they aren’t reimbursed upfront for financed purchases, shops that provide in-house client financing face an immediate loss in cash flow.
• Risk: While allowing clients to purchase now and pay later always carries some danger, the risk is magnified for organizations that provide in-house financing. Third-party finance providers, in general, safeguard companies from most of this risk by paying merchants in full. However, there is a danger of nonpayment depending on the supplier.
• Flexibility: Some client financing systems have restrictions on the types of transactions that may be funded. In general, however, they allow consumers to finance even little purchases that shops may not be prepared to finance in-house. When selecting how to provide consumer financing, think about your pricing and AOVs.

3. Select a Financing Company

You may pick a provider after you’ve concluded that client financing is a suitable match for your company and chosen what sort of financing to provide. To discover more about some of your choices, use the tabs below.

PayPal is a fantastic third-party financing solution for customers. (PayPal source)

PayPal’s normal online checkout includes two financing options: PayPal Credit and Pay in Four. PayPal Credit is an interest-free credit card that allows customers to pay for their purchases over the course of six months. Pay in Four provides four months of interest-free installment payments. At checkout, customers may choose the option that best suits their requirements. BigCommerce, WooCommerce, Magento, and other major ecommerce platforms are compatible with PayPal Credit and Pay in Four.

PayPal also has over 377 million active users worldwide, making it simple for customers to pay using PayPal. When a consumer uses PayPal Credit or Pay in Four, shops pay a set cost ranging from 5 cents to 49 cents plus their usual PayPal transaction fee, which is generally between 1.9 percent and 3.5 percent of each transaction.

Customers may pick a financing option with ViaBill, which is integrated with your online checkout. (Image courtesy of ViaBill)

From your ViaBill Dashboard, you can easily manage your funded purchases. (Image courtesy of ViaBill)

ViaBill is a financing platform that allows users to pay for items in four payments over many months—unlike PayPal, this is the sole financing option available to customers. Customers don’t have to pay interest and aren’t required to undergo a credit check. Retailers are charged a 30-cent transaction fee plus 2.9 percent of the transaction value, which is less than most other client financing alternatives.

Retailers may raise their average order value by 33% and their conversion rates by 18% by using ViaBill. ViaBill connects with ecommerce systems like Shopify, Magento, and WooCommerce, much like other client financing services. There’s also a simple retailer dashboard that makes managing your funded purchases a breeze.

Klarna provides a variety of financing alternatives for your consumers, ensuring that everyone can find a plan that meets their requirements. (Image courtesy of Klarna)

With over 250,000 partners and over 2 million daily transactions, Klarna is one of the biggest finance firms on the market. It provides clients with a variety of financing choices, including four interest-free payments, pay-in-30-days, and six to 36-month payment plans. You may also promote Klarna on your website so that clients are aware of their purchasing possibilities right away.

The cost of a transaction varies depending on the kind of financing used and whether the purchase is done in-store or online. Each purchase, however, is subject to a 30-cent cost plus a variable fee that may range from 5.99 percent online to 3.29 percent in-store.

What if I told you that

With Klarna, retailers may expect a 41 percent rise in AOV and a 30 percent increase in conversion rates.

Klarna, like other consumer financing systems, reduces credit and fraud risk while allowing companies to receive payment in advance. Additionally, the user dashboard makes managing orders, refunds, and disputes a breeze. Klarna integrates easily with Shopify, WooCommerce, Magento, and BigCommerce, among other ecommerce platforms.

Afterpay makes using financing options simple for both you and your clients. (Image courtesy of Afterpay)

Afterpay is a fintech startup that provides zero-interest financing to shops. 90 percent of buyers are accepted for financing, so you don’t have to worry about your clients’ accessibility. Customers make the first of four installments at the time of purchase, with the remaining three payments spread out over six weeks. At this moment, Afterpay does not provide other payment plans.

Participating shops may use the platform’s versatile POS and ecommerce connectors to enhance cart conversion by 22 percent on average. Afterpay generates more return customers and may raise AOVs by up to 40% due to the cheap cost and simplicity of financing.

Afterpay charges a basic cost of 30 cents for online purchases, as well as a commission that fluctuates depending on the amount and number of transactions conducted via Afterpay. Basically, the smaller the percentage charge, the more you sell in terms of both volume and value. The merchant fees charged by Afterpay vary from 4% to 6%.

4. Make Financing a Part of All Sales Channels

You’ll need to include the payment option to all of your sales channels, whether you utilize in-house or outsourced finance. This necessitates the use of a point-of-sale system that allows you to create your own financing choices or connect to a third-party finance platform. Financing alternatives should also be included in product descriptions and the checkout process for online shops.

Including financing options on your product pages is an excellent approach to increase conversions. (Image courtesy of Klarna)

The finest POS financing partners make it simple to interface with the most popular POS and ecommerce systems, allowing you to expedite checkout and maintain all of your sales information in one place. You should make an effort to combine your funding alternatives with your business plan.

• In-store POS: Integrate your financing option with your POS system to allow consumers to choose a financing option for in-store transactions.
• Website checkout: Just like you would with Apple Pay, Debit, or Credit, add your third-party or in-house financing offering as a payment option to your checkout page.
• On online product sites, it’s important to include both the list price and the financing monthly rate so that clients can determine whether an item is within their budget while they browse.

The main idea

All of the solutions we discussed in this post, including Klarna, PayPal, ViaBill, and Afterpay, enable you to link their financing options with your product pages. As we’ll see below, this connection has the potential to significantly increase your conversion rates.

5. Let your customers know about your financing options.

After you’ve completed all of the necessary research, it’s time to inform your consumers about your new financing choices. Customers will be aware of the choice if you prominently market it in your shop, on your website, and on social media. When it comes to big-ticket purchases and online shopping, this method may transform passive surfers into consumers. Incorporating funding into your marketing approach might also persuade customers to pick your brand over that of your rivals.

You should also teach your personnel to use your POS system to make a financed purchase and to discuss financing choices at checkout and while engaging with consumers.

Pros & Cons of Offering Consumer Financing

Merchants may profit from client financing in a variety of ways, including enhanced customer satisfaction and retention, as well as the capacity to compete with bigger stores. Customer financing, on the other hand, comes with certain dangers, and it may result in more complicated accounting obligations for your company.

Payment in advance: Using a third-party consumer financing platform, shops may receive paid in advance and minimize the danger of a customer/borrower defaulting.

Increase your competition with big-box stores: The majority of big-box stores provide a financing option or a store card with attractive promotional incentives. You might lose tens of thousands of dollars in sales if you don’t provide client financing to your customers.

Increased sales: By providing client financing, more customers will be able to afford to buy at your business. This equates to a better consumer conversion rate, which may lead to greater brand loyalty in the long run.

Higher average order values: Because add-on purchases add negligible cost to monthly rates, consumer financing encourages consumers to make them. This implies that borrowing money may help you boost your AOV. Customers may also choose to upgrade to more costly versions of things rather than settle for a less expensive product that they can pay off right away.

Debt risk: Financing consumer purchases in-house means taking the chance that not all borrowers will repay their obligations. This is particularly harmful to firms that already have thin profit margins. Even if you work with a third-party financing platform, it may retain the right to cancel a financing arrangement at any moment, leaving you vulnerable to financial hazards.

More complicated accounting: If you provide financing in-house rather than via a third-party lender, you’ll have to spend more time monitoring and following up with borrowers to recover missing payments. This means your accounts receivable department will need extra resources.

Reduced cash flow: Companies that manage client financing in-house will see a temporary reduction in cash flow. Because a company only gets a down payment when a consumer purchases and finances an item, this is the case. While financing alternatives might lead to higher sales, many firms may not be able to wait for full payment.

Landscape of Customer Financing

Customer financing has been around for a while, but its applications have been growing in recent years. Customer financing used to be reserved for major purchases such as vehicles or home renovations, but it is now utilized for all types of transactions, large and small. As consumer financing becomes increasingly popular, we’ll take a look at how customers are utilizing it.

• The number of POS loans outstanding more than quadrupled between 2015 and 2019, reaching an anticipated total of $10 billion in 2019.
• Small-ticket loans are becoming more popular: Small-ticket (under $500) POS loans are increasing at rates of 40 to 50 percent each year.
• Customers intend to finance significant purchases in advance: Approximately 75% of people who plan to finance large purchases want to do so before they make them.
• Financing options are displayed throughout a website: A study from McKinsey & Company found that when you display that you offer financing throughout your site (as opposed to just at checkout), customers are two to three times more likely to make their purchase. That grows exponentially when compared to not advertising your financing options at all.
• People are experimenting with new finance sources, such as: According to Klarna, new clients account for up to 40% of company sales.
• The number of people who use it will continue to rise: In 2025, the BNPL sector is expected to grow to $680 billion in transaction volume, up from $285 billion in 2018.
• Consumers select financing to avoid interest: The most common motivation for consumers to finance their purchases is to avoid paying interest on their credit cards. A close second is the ability to purchase items that they would not otherwise be able to.
• More than half of customers had used BNPL: In July 2020, 55.8% of consumers had used a BNPL service, up from 37.65% in July 2020—a almost 50% increase in less than a year.
• Some BNPL customers face penalties and late payments: Just over 30% of BNPL users have made a late payment or paid a late charge, and 36% think they are at least somewhat likely to do so in the coming year.
• PayPal is the most popular financing option: PayPal’s BNPL services are the most popular among suppliers, with 43% of customers claiming to have used the brand’s BNPL services.
• Ecommerce sales are becoming more BNPL: BNPL sales will account for 13% of all online transactions by 2024.

Conclusion

Many clients do not have the financial means to make major purchases in today’s economy. Customer financing allows customers to spread out the payment of major purchases over time, boosting sales and transaction values in your business. Choose a POS finance partner that suits the demands of your company and its customers to get the most out of customer financing.

The “third-party financing for my customers” is a process that can be used to offer customer financing and buy now, pay later. This article will walk you through the process of setting up your own company’s third-party financing.

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