How to Offer Customer Financing to Convert More Buyers

Meredith Wood

Meredith Wood

Editor-in-Chief at Fundera
Meredith Wood is the editor-in-chief at Fundera. She has specialized in financial advice for small business owners for almost a decade, and is sought out frequently for her expertise in small business lending. Meredith’s advice has appeared in the SBA, SCORE, Yahoo!, Amex OPEN Forum, Fox Business, American Banker, Small Business Trends, and more. Email:
Meredith Wood

After starting a business, your next task is finding ways to acquire and retain customers. In order to do that, you must adjust your business to the needs, wants, and budgets of your customer base. Depending on the type and price of your inventory, offering customer financing might be a great way for you to increase sales and customer loyalty.

Customer financing allows your customers to enroll in an affordable payment plan, rather than paying the entire price of an expensive item upfront. It’s designed to convert people from simply looking and thinking about shopping in your store to actually buying your product.

Small businesses and larger brands offer customer financing to convert more people into buyers. We’ll break down your customer financing options, how to choose a financing program that suits your business and preferences, and whether you should offer customer financing at all.

How to Offer Customer Financing

Customer financing offers options for customers who want to buy your goods and services, but can’t afford them. By enrolling in a payment plan, an item that costs, for example, $500, becomes available to your customer for five payments of $100 (plus a small interest rate).

On the merchant’s end, this increases buyer conversion and customer loyalty. One study found that offering consumer credit options increases a customer’s average order size by 15%. Plus, 93% of customers who used credit options say they would make use of them again.

There are two main ways to go about offering customer financing. One option is to run credit checks, offer financing, and manage payment collection on your own. This takes up a lot of time and comes with legal responsibilities surrounding the use of consumer credit information. To save time and transfer some of the legal risks, most businesses rely on a third-party financing firm to make credit offers and collect customer payments.

Assuming you use a third party provider, here’s how to offer customer financing:

  1. Customer sees a product or service they want to buy, either in-store or online.
  2. Customer can’t afford the full price, so they apply for financing (usually, customers can apply at the online checkout cart, on their smartphones, or through the merchant’s point of sale system). The financing provider may run a credit check on the customer at this stage.
  3. If approved for financing, the merchant will receive full payment on the product right away.
  4. Customer receives the product or service right away, but pays back the financing provider on an installment basis.
  5. Unless the financing provider is offering a promotion, the customer will have to pay an interest rate. The merchant might also have to pay a small percentage per financed transaction.

Here’s more information on customer financing providers, so that you can choose the best option for your business:

customer financing providers

Photo credit: Everlane

Best Providers to Offer Customer Financing

Dozens of providers help businesses offer customer financing, but not all of them are right for small business owners. Many require certain sales minimums or a minimum number of financed purchases each month, and they take a large cut out of financed purchases. 

The providers listed below have reasonable fees and no minimums, making them good options for small businesses. When you opt for one of these digital platforms, your customer can apply for financing in your store, online, or right from their smartphones.

Here are five customer financing platforms you might want to consider:  

1. Viabill

Viabill is designed for online small businesses that want to offer financing to their customers. Instead of have to pay the full purchase price, customers can split the cost into four equal monthly payments. Whether you use Shopify, Magento, WooCommerce, or another platform for your ecommerce shop, you can seamlessly integrate Viabill into your online checkout within hours. Merchants pay a fee of 2.90% plus 30 cents per transaction, similar to credit card processing fees. Customers don’t have to pay any interest for purchases of up to $300. There are no credit checks and no payment due at checkout.

2. PayPal

There are many popular PayPal small business solutions, but one that you might not be familiar with is PayPal Credit. PayPal Credit is a good way for online businesses, particularly those that already accept PayPal as a form of payment, to offer customer financing. This program lets you add a financing button to your online checkout when your customer checks out with PayPal on your website. PayPal will make a credit decision within seconds. PayPal Credit is free for merchants who already accept PayPal. Customers don’t have to pay any interest if they pay in full for a good or service that’s at least $99 within six months.

3. Financeit

Financeit offers customer financing for purchases of up to $60,000. They don’t charge merchants transaction fees, and the standard program is free, too. Your customer can apply for Financeit customer financing from their smartphone in your store, and, if approved, they can receive funds as soon as the next day. Then, Financeit transfers the total payment amount to you within two business days, and the company takes care of payments from there. They’ll charge your customer an interest rate depending on their creditworthiness, region, and the size of the payment plan.

4. LendPro

LendPro’s customer financing platform integrates with your small business website, so your customers can check their financing options from the comfort of their own homes. They work with industries that normally sell expensive items, such as home goods, automotive, and jewelry. LendPro also sells application kiosks that you can install in your store. If your customer decides to pursue a payment plan, LendPro lets them evaluate multiple options through their application process. They provide payment plans and interest rates for all levels of creditworthiness and payment amounts.

5. Afterpay

Afterpay is a customer financing platform that has been utilized by some of the biggest names in retail, including Urban Outfitters, Anthropologie, and Everlane. Unlike LendPro and Financeit, which specialize in big ticket items, Afterpay finances small discretionary purchases, such as clothing, jewelry, and housewares. Your shoppers will see the Afterpay option while browsing and can fill out a short form for an instant approval decision. In approved, the customer can pay for the order in four equal installments, with the first payment due up front. They offer zero interest financing for customers. Merchants pay 4 to 6 percent plus 30 cents on each financed transaction.

customer financing

Cost of Customer Financing

Any customer financing program involves a cost-benefit analysis. Although you’ll likely convert more customers and make bigger sales, the cost of the financing needs to make sense for your company.

A few programs, such as PayPal Credit, don’t charge any fees to the merchant. However, most customer financing programs charge businesses a 2% to 6% fee per transaction, plus a fixed $0.20 to $0.30. A few others charge a monthly fee, around $40 to $50, for a specific or unlimited number of financed transactions.

When assessing the cost-benefit analysis, it helps to have a few months of data under your belt. Once you see how many customers are utilizing the financing and how much it’s costing you, you can decide whether to offer this over the long term.

Customer Financing for Small Business: Pros and Cons

As always, when considering a new business model, you’re going to want to weigh the pros and cons to make sure it’s right for you. When it comes to customer financing, there are some obvious benefits, as well as a couple of hidden risks to prepare for.

Pros of Customer Financing

1. Increased Sales

As we mentioned, offering a payment plan on your expensive items makes it possible for customers who might have left without buying anything to complete a larger purchase. More sales for more expensive items? That spells more revenue for you.

2. You Gain Customers

If your target customer is in the market for a large purchase, like a sofa or a fridge, they might be more likely to buy from you than from a competitor that doesn’t offer financing. That customer might also be more likely to return to your store for future expensive items, since they already know that they’ll be approved for your payment plan.

3. Upfront Payments

If you’re working with an outside customer financing company, they’ll pay you upfront for the full price of the item and then collect incremental payments directly from the customer. Not only does that limit the risk for you, but it also increases your immediate cash flow, making it easier to take care of other things in your business.

Cons of Customer Financing

1. Potential for Bad Debts

Even if you do a thorough credit check before financing a customer (which you should!) you can never truly know how responsible they are with their finances or what kind of financial roadblock they may run into that would preclude them from honoring their debt agreement. The truth is, there’s always the potential for a customer to become delinquent on their payments, which would mean that you’re out that money. You need to be willing to take that risk.

2. Extra Accounts Receivable

You may save money by not hiring an outside customer financing company—but you will have to calculate the cost of the size increase of your accounts receivable department. Even if that just means hiring another person to be responsible for tracking and following up on financing payments, employing that extra hand is an added expense.

3. Impact on Cash Flow

Without the upfront cash you’d receive from a customer financing company, offering financing on your own will have an adverse impact on your cash flow, at least at the beginning. Eventually you’ll start receiving those payments, but if having cash on hand is important to your business, this might not be the best option for you.

customer financing

Bottom Line: Should You Offer Financing to Customers?

You should offer customer financing if you think your customers will take advantage of a payment plan. Before signing up with a financing company (especially one that charges you), try to gauge interest with your customer base. Send out an email survey or talk to customers in your store who leave without purchasing anything. If it seems like people would be interested in financing—and it would incentivize them to buy an item that they otherwise wouldn’t—then customer financing could boost your business’s popularity.

Another thing to consider is what you’re actually selling. Customer financing is proven to work for big-ticket items, like furniture or appliances. But even if you’re selling products like clothes or smaller decor that are more affordable, a financing program might be useful. Many businesses that sell small items to a millennial audience have incorporated customer financing.

Ultimately, offering financing to customers is a win-win situation for many small businesses. You get more conversion and bigger sales. Your customers get the product or service they want or need. The most important thing is to find a customer financing program that works for you and your customer base.

Editorial Note: Fundera exists to help you make better business decisions. That’s why we make sure our editorial integrity isn’t influenced by our own business. The opinions, analyses, reviews, or recommendations in this article are those of our editorial team alone. They haven’t been reviewed, approved, or otherwise endorsed by any of the companies mentioned above. Learn more about our editorial process and how we make money here.
Meredith Wood

Meredith Wood

Editor-in-Chief at Fundera
Meredith Wood is the editor-in-chief at Fundera. She has specialized in financial advice for small business owners for almost a decade, and is sought out frequently for her expertise in small business lending. Meredith’s advice has appeared in the SBA, SCORE, Yahoo!, Amex OPEN Forum, Fox Business, American Banker, Small Business Trends, and more. Email:
Meredith Wood

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