How to Boost Your Service Business With Customer Financing
July 5, 2022 | Read: 7 minutes
The business world has taken enormous strides in ensuring that customers are king.
Businesses, on that note, have taken significant measures to serve customers – and one way is through customer financing.
But customer financing is not a 21st-century innovation. As early as the 17th century, merchants already devised a credit system for local farmers – we just took it a notch higher with the technological advent we now enjoy.
Small business owners and other essential staff (i.e., marketing and business development) can take a lesson or two from the olden days and recent moves, especially those in the field service like plumbing, electrical, and other trades.
After all, the technological tools and marketing trends at our disposal aid us greatly in matters like risk evaluation and improved collections and services.
Read on to learn more about customer financing and how it can help businesses thrive and gain more footing!
What is Customer Financing?
Customer financing is one of the more recent ways of attracting and retaining clientele. It is an approach that allows customers to do installations for payments instead of producing the required sum of money upfront.
Financing is helpful because services and products that otherwise could have been deemed unaffordable suddenly become accessible. The customer is able to reap the benefits of a more efficient or luxurious install, by breaking down the payment into installments.
Whether it’s HVAC financing, plumbing, electrical or any other service, the best part is that businesses do not lose money because they still get paid in full. Additionally, they can retain their cash flow intact while gaining loyal customers and still maximizing sales.
How Does Customer Financing Work?
There are two ways to look at customer financing to operationalize it. One is for the business to be a financing partner, while the other is to find ways to fund the payment plans first.
Option 1: Be a Financing Partner
Most businesses – and this might be the better option for small businesses, too – deem the first option better. Your primary accountability is making credit offers, managing legal risks, checking credit standing, and collecting installation payments.
For this to occur, any consumer must pay the partner, with the partner paying the business when they finish the task. There is no need to look after clients or suffer cash flow issues.
A word of advice for those choosing financing partners is to look for those who bode well with homeowners. These partners can even choose to waive late fees and offer other affordable schemes like 0% financing for the first few months.
An example of customer financing is having a lending partner that prioritizes easy access to money. They understand that customer financing impacts an increase in sales – and in turn, they make energy-efficient, high-quality air conditioning systems more accessible to almost all kinds of homeowners.
They also know the right tools and methods; for example, they know how to target these homeowners because they know how to choose the right customer financing software. In fact, in more recent times, around 50-80% of projects have followed this scheme already.
That shows that financing companies have figured out how to give out HVAC installations – especially with the right all-in-one HVAC software – even if some products are expensive.
Option 2: Offer In-House Financing
This type of customer financing is another option. With in-house financing, the business no longer has partners offering financing schemes, collecting payments, and running credit checks. It cuts out the middle-man which speeds up the process and saves costs, but places the burden on the service company itself.
In-house financing is ideal for large businesses with the resources needed for program management. Here’s a caveat: While it is still a trusted and promising way to increase sales, companies have more legal accountabilities, especially when handling the clientele’s credit information. So, if you’re looking into this option, make sure you’re ready for the responsibilities that come with it. Below, you’ll find a through sales guide to help you get started.
The Benefits of Customer Financing
This type of financing provides affordability of products and services to a broader set of possible clientele. There is no need to fret over having vast sums of money to acquire a service.
The benefits go both ways, which we discuss in detail below:
Benefits for the Field Service Business
The business gets to build a better reputation and, in turn, gain more clients. Also, with the right tools, so many opportunities open up; for example, plumbing businesses that employ the right plumbing software drive more inquiries, boost cash flow, and attract – then retain – satisfied customers.
Being known as a business that offers customer-friendly solutions also makes that business stand out.
As long as the company has the prerogative of helping the clients and not subjecting them to a final quote, it is easier for them to seal more deals; in fact, data show that sales go up by as high as 20% through customer financing.
Yet another benefit is minimizing the hassle of chasing down payments. Small businesses that push through with third-party financing can continue focusing on servicing their clients instead of worrying about when to collect fees or not.
Through customer financing, the business also gets the payment right away. Fees like these help firms keep their business afloat.
Benefits for the Customer
Customers with budget concerns no longer worry, especially if the business offers integrated financing. Nowadays, the options available are also accessible after companies conduct seamless, soft credit checks that do not pose a burden to the client.
Businesses help remove the financial barriers, and both firms and customers enjoy the benefits. Repeat purchases are also possible while enjoying client loyalty.
Customers also have the chance to negotiate payment terms and conditions. That new, energy-efficient HVAC install is no longer a dream that can’t come true because one can pay for it over time and have it in the long run! Meanwhile, the energy savings even out the additional cost.
Customer Financing: Factors to Consider and Avoid
Despite its many advantages, firms – tiny businesses – must be conscious of the downside of this financing type. However, don’t worry – these are reminders rather than threats, and they are also manageable.
First, businesses might need to consider the budget they need for partnering. Known as customer acquisition cost, this comprises fees that the company must give to the financing provider.
To make sure a field service business can handle this possible debacle, a cost-benefit analysis helps to check whether the option is profitable or not.
Another possible disadvantage is the presence of service fees. Some third-party providers charge for their service monthly or per transaction, mainly to provide customer convenience.
You can work around this disadvantage by ensuring that the partner you pick will not have early repayment fees or will not charge late fees at all. After figuring these out, it’s important to factor them in when you set your price-book.
The Takeaway on Customer Financing
The benefits of customer financing are pretty clear: more customers can afford your services, your deal value increases, and your cash flow benefits.
Businesses need to reach out to customers in more ways than one nowadays. Look into customer financing now and see the benefits it holds for your small business – this might just be your next step toward the big break you want.
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