Key Takeaways
- Flexibility and Competitive Edge: Offering flexible financing options, such as trade credit and financing solutions, can distinguish a B2B company from its competitors, and help it win and retain new business.
- Common Practice with Benefits: Offering payment terms or financing to clients is a widespread practice in B2B commerce. It allows clients to make purchases now and pay later, benefiting both merchant and buyer.
- Considerations Before Offering Finance: Extending payment terms can add an element of risk and financial admin. Merchants should conduct a careful analysis of their buyers and their own capacity to manage a finance offering.
- Benefits of Customer Financing: Offering financing often leads to increased sales and order values, higher customer loyalty, and a competitive advantage that allows businesses to tap into a wider customer base.
- B2B Payments as an Alternative to Finance: Get the benefits of offering customer finance with B2B Payments instead. Enterprise solutions like Kriya PayLater offer instant spending limits, flexible payment terms, and fully managed repayments. And they can be integrated into a variety eCommerce or offline sales channels.
Extended payment terms and trade credit have been part of B2B commerce since time immemorial. Offering financing options is a powerful way to set a company apart from its competitors and incentivise its buyers to make larger purchases, more frequently.
Offering finance or other flexible payment terms enables your clients to make a purchase now and pay for it later. Both you and your buyers can benefit from customer financing: you are able to sell more full-priced goods and services while your clients get the product they need but defer payment until later.
Traditional finance offerings are inflexible and cumbersome to offer though. Accustomed to seamless and instant payment methods and buy now, pay later options in the consumer world, buyers are now beginning to expect the same levels of ease and innovation for business transactions.
In this article we’ll break down the key information businesses need when looking to offer their buyers financing options.
Should I offer finance to customers?
First of all, businesses should ensure that offering finance to customers is the right choice. Making the decision to provide financing to customers should be based on a careful analysis of your customers and an evaluation of your company's ability to handle the administrative and financial facets of financing schemes.
There are numerous incentives for businesses to offer financing options; Financing makes your goods or services more accessible to customers who would prefer to pay over time, which can increase sales, draw in new buyers , and strengthen customer loyalty.
The administrative burden of managing financing options, whether off your company’s own balance sheet or through outside parties, and the exposure to bad debt are just two examples of the possible risks that must be taken into account.
In the end, if your company is equipped to handle these challenges, or finds the right partner to help, then offering financing can be a highly effective way to grow your revenue.
How to offer finance to customers
In-House Financing Overview
What is in-house financing?
In-house financing is a direct lending method where merchants offer loans to their buyers for purchasing goods or services.
With in-house financing, a company offers its own financing programme, functioning as a creditor. This involves using cash from the company balance sheet, as well as extending the typical timeframe between an order being placed and payment being received (often by a month or longer). For the merchant, this is a more involved process than borrowing money from outside sources (see ‘third-party financing’ below).
Typically companies have to cover the costs of credit checks and payment collection for in-house loans, which require staffing and software.
Offering in-house financing
- Set Your Own Plans: By managing financing in-house, businesses can set their own credit terms and approval criteria. This often includes offering loans to buyers with lower credit scores, which might not be possible with external lenders. In these cases there is clearly increased credit risk.
- Working Capital: However, when funding your own loans, that money is being tied up in extended payment terms, rather than being invested in other growth initiatives such as marketing, hiring or product development. This can also increase a company’s exposure to cash flow issues caused by late payments or defaults.
Third-Party Financing Overview
What is third-party financing?
Third-party financing offers a pathway for businesses to provide their buyers with flexible payment options without the direct risk and responsibility of managing the loans themselves.
Using third-party financing relies on an outside source to serve as a lender at the point of sale. Unlike other, stricter forms of financing, third-party financing companies approve a greater range of credit. These financing plans may charge interest at predetermined rates, or they may not charge any interest at all.
In some cases, the buyer agrees to a payment plan that breaks down the total cost of the purchase over time, usually in instalments of one month.
Another widely used third-party financing option is the B2B buy now, pay later (B2B BNPL) model that offers short-term, usually interest-free financing. Online retailers often use buy now, pay later financing.
Offering third-party financing
- Use a Specialist: Businesses can partner with third-party provider(Learn more about how Kriya can help). These specialists make the entire process of offering finance to customers seamless and easy to implement.
- Seamless experience: These providers handle crucial steps including credit checks, buyerapproval, and payment collection. They pay businesses upfront for purchases, charging a service fee which can be a fixed amount per transaction or a percentage of the sale.
- Benefits and Considerations: Third-party financing can increase average order sizes and attract more customers by offering upfront payment to merchants. However, businesses must consider the risk of bad debt, increased administrative expenses, and service fees. When selecting a provider, factors like transaction size, customer creditworthiness, and integration capabilities with key business software (such as eCommerce or ERP) should be evaluated.
This approach offloads collections and accounts receivable management to the third-party, potentially reducing credit and fraud risks for the business.
Kriya can help you offer finance to customers
Kriya is the Enterprise PayLater solution. Having processed over £27B of B2B payments over 12 Years, we help businesses offer customers finance through flexible B2B payments.
Rather than cumbersome loans, or trade credit, offer buyers flexible payment terms at purchase, whether at online checkout, or offline channels such as over the phone or even in store. In addition, PayLater offers instant buyer onboarding, fully managed repayments and reconciliation service, and full upfront payment to the merchant.
Benefits of Offering Customer Financing
Taking an innovative approach to offering finance to your customers by using B2B payments has many benefits:
- Increased Sales and Order Values: By making it easier for buyers to purchase, merchants typically see an increase in average order size and a growth in new buyers. Merchants using Kriya see a 68% increase in average order size and an 82% increase in conversion by offering flexible payment terms.
- Higher Customer Loyalty and Satisfaction: Financing options encourage buyers to make repeat purchases and advocate for a brand because they are flexible and affordable when making payments in instalments. We’ve seen a 2x increase in repeat purchasing buyers that use Kriya PayLater.
- Competitive Advantage and Market Expansion: Offering payment terms can set a business apart, attracting buyers who might not have the immediate capital for large purchases. This is especially crucial in markets with high upfront costs or aggressive working capital cycles, allowing businesses to tap into a wider buyer base.
FAQs
Q: What are the steps to provide financing options to my customers?
A: To offer financing to your customers, you must first choose whether to provide in-house financing or partner with a third-party provider. Once decided, you need to integrate the financing options with your point-of-sale (POS) and eCommerce platforms. After the integration, inform your customers by placing signage in your store, adding banners to your website, or announcing it via your marketing channels.
Q: Can you explain the customer financing process?
A: Customer financing is a program offered by businesses that allows customers to purchase products or services and pay for them later, over an agreed period. This process typically involves an application where the customer undergoes a credit check to evaluate their creditworthiness and risk level, before being provided a spending limit and payment terms.
Q: How does offering financing affect my business's sales?
A: Providing customer financing can positively impact your sales by giving customers the ability to make purchases they might not afford upfront, thereby spreading their payments over time. This can lead to customers making larger purchases, buying more frequently, and becoming repeat customers.
