Offering Customer Financing: What It Is and How It Works

Published: May 12, 2021, Last Updated: May 1, 2025

Writer at Finturf.com
Writer: Martha Pierson
Editor at Finturf.com
Editor: Anais Osipova
Reviewer at Finturf.com
Reviewer: Michael Needham

With the boom in consumer financing, today’s buyers are no longer obligated to pay for large-sum products or services upfront and in full. Instead, they’re given the flexibility to pay in budget-friendly installments. For businesses, this shift in consumer financing means you can now offer financing to customers to gain new customers, drive larger sales, and generate more revenue.

Whether you’re just learning about customer financing or need help deciding what consumer financing model to implement, this article can help. Read on to learn about options for your business’s customer financing solutions.

What Is Customer Financing?

Customer financing is the opportunity for customers to pay for products or services via payment or installment plans, allowing customers to receive products or services immediately while paying for them over time. This can help to boost sales for the business and increase product accessibility for the consumer.

How Does Customer Financing Work?

Customers can apply for a loan or other financing option dividing the total expense into smaller, more manageable payments. First, the lender will determine the customer’s eligibility via a credit check and income verification. If eligible, the lender may offer the consumer a split payment, personal loan, line of credit, leasing product, or other form of financing.

Businesses can either manage their customer financing options internally or partner with a third-party financing provider. If funding is provided in-house, the business will take on the underwriting process, fund the loans, and assume responsibility for repayments. Conversely, if funding comes from a third-party financing company, the third party will manage the underwriting and lending, and the business will pay a small fee for these services.

How to Offer Financing to Your Customers

There are two main ways to offer consumer funding. The first method provides in-house customer financing, where the merchant becomes a lender. The second method utilizes third-party customer financing through a partnership with a point-of-sale (POS) financing company.

Choose the Type of Financing You Want to Offer

If you’re ready to start offering financing to your customers, you can choose between in-house funding or partnering with a third-party financing provider. Let’s take a look at the differences between each framework.

In-House Customer Financing

Merchants can play the role of the lender by providing in-house financing directly to their customers. Putting on two caps has its advantages and disadvantages and comes with multiple responsibilities.

Merchant offering customer financing at checkout

In-house financing avoids outsourcing any management, giving the business more control in the lending process and profit from interest. However, it also places all legal obligations into the business’s hands. It can also be costly to develop, as a repayment system must be designed, and a new team must be hired to manage it.

If in-house customer financing seems like the best option for your business, your business will need to take the following steps:

  • Develop payment plan contracts, terms, and conditions
  • Develop a credit policy and determine the buyer’s creditworthiness
  • Manage accounts receivable and payment collections
  • Manage late payments and track defaults
  • Secure customer credit data and abide by legal regulations
Legal Risks

In-house customer financing for small businesses comes with legal risks. Everything from your ad copy to your credit screening process can put you on the wrong side of the law. Merchants must be careful to follow both state and federal usury and debt collection laws.

If you fail to abide by the state and federal usury and debt collection laws, you will be at risk of paying fines or other penalties.

Defaults

When merchants provide in-house financing, the business has to pay the consequences if a customer defaults on their loan. This can negatively affect your business’s finances and cash flow.

Also, you cannot take any action without referring to federal and state laws. Each state has its own rules and regulations regarding this matter.

Before offering in-house financing, do the necessary calculations and research to determine how many defaults your business can handle without harming your cash flow.

Additional Costs

With in-house financing, your business will assume all the logistics associated with consumer financing, including the costs. If your business decides to assume the role of the lender, your overhead costs will increase. These added expenses can include hiring accounting and financial personnel, purchasing new software, investing in underwriting, and paying for credit checks.

In addition to the previously mentioned costs of setting up in-house financing, your business also assumes the risk of defaults. While you can minimize the rate of defaults with a comprehensive underwriting process, you could still lose out on revenue if a consumer fails to repay their loan.

Third-Party Customer Financing

Conversely, if your business is not financially or logistically ready to take on in-house financing, you can partner with a third-party provider to offer consumer financing. The third-party company will handle the logistics and risks associated with lending, such as underwriting, repayments, and defaults. In turn, your business will pay a fee for every financed consumer.

Close up on customer financing payment

In addition to alleviating some risks, third-party providers also offer businesses full funding within a few days. Regardless of whether the consumer has paid back their loan, your business will be reimbursed, increasing your cash flow.

While partnering with a third-party provider is often preferred, the associated costs of utilizing their services are one downside. For instance, businesses using third-party providers to offer consumer financing will pay monthly or transaction-based fees.

Less Risk

The obvious benefit to working with a third-party provider is that your business will not assume any of the responsibility or liability of lending. Instead, the third-party provider and its network of lenders will handle all the legal obligations, underwriting, repayments, and defaults. 

Large Lender Network

Typically, third-party providers will have a larger lender network. This is a win-win for businesses and consumers. With an extensive lender network, your consumers may be more likely to find a financing option. 

Additionally, with a larger lender network, some financers may be willing to work with less-qualified consumers. In turn, this reflects well on your business, as it increases customer satisfaction.

Extra Costs

Not only do third-party financing companies charge interest to the customer, but they also may charge a service fee to the merchants. Even though it makes sense for the financing company to ask for a price for their services, consider if your business is capable of paying an additional fee. 

Typically, merchants pay a platform fee to the third-party service provider. Additionally, merchants may also pay a fee for each customer or client that receives financing. These fees depend on the provider and can range between 1% and 20%, depending on the product, service, and industry.

However, some third-party service providers may offer incentives and rebates to merchants with high transaction volumes.

Cost-Benefit Analysis

Even if you sell high-ticket products, customer financing may not be the best option if your margins are too thin. For example, if your average profit margins aren’t greater than the cost of customer financing, you’ll end up with a net negative cash flow. Performing a cost-benefit analysis will help you determine if customer financing is a viable payment option given your current profit margins.

Close up on email promotion offering customer financing

Also take into consideration the two forms of customer financing — in-house and third-party. You can perform a cost-benefit analysis for both forms of customer financing to determine which option is the most beneficial for your operations. When performing this cost-benefit analysis, remember to account for indirect and intangible costs associated with in-house customer financing, including administrative tasks, legal risks, and possible defaults.

Choose a Reliable Financing Provider

If third-party customer financing seems like the best option for your business, you will need to take the following steps:

  •  Research the third-party company’s history, terms, and conditions
  • Consider the contract length – many third-party lenders have long-term contracts with fees for early termination. Often, these long-term contractors may only allow you to work with certain lenders. 
  • Research company image, public reception, and customer satisfaction before entering into a public business deal.

Before partnering with a customer financing company, no matter your industry, make sure they offer the following:

  • Soft credit pulls
  • An extensive network of lenders
  • Low cost
  • Fast approval
  • High approval rates
  • Low-friction consumer experience
  • Merchant management dashboard
  • Advanced reporting

Integrate It into Your System

Choosing a customer financing provider is just the beginning. The next step is integration. Here’s what you can expect:

Merchant Underwriting Requirements

  • The provider’s merchant underwriting team will need to ensure you meet certain criteria.
  • Be aware that some companies might require you to cover underwriting fees. If you suspect you might not be approved (e.g., your business is new, or you haven’t generated revenue yet), consider building up your portfolio first.

Seamless Integration Process

  • Once you’re ready to sign up, the integration should be straightforward.
  • Partnering with a customer financing company usually involves logging into their software and integrating it with your checkout process.
  • The financing request will likely blend seamlessly with your current operations, requiring minimal effort on your part.

Those entering Finturf’s ecosystem can receive help every step of the way via our merchant success team. We make integration a breeze.

To attract new clientele and get a leg up on the competition, create marketing campaigns that promote your new consumer financing options. For instance, send out email blasts, update your website with popup notifications, set up promotional signage in-store, and encourage sales personnel to discuss financing options with customers. Take advantage of the communication channels you have with your customers to share any new opportunities, especially financing for customers.

Why You Should Offer Customer Financing

Undoubtedly, customer financing is a win-win for your business and customers. Below are some of the reasons why the demand for financing has steadily increased.

The Benefits of Customer Financing for Your Business

These are some of the top reasons businesses choose to offer financing to their customers:

  • Higher Sales and Revenue

Offering financing to customers will give them more flexibility and accessibility to receive the products and services they need without the obligation to pay in full. Additionally, eligible consumers will be able to pay in budget-friendly installments for large-sum purchases. As such, your customers will no longer have to put off purchases because of a lack of funds. In turn, this translates into higher sales, more profit, and increased add-on purchases.

  • Competitive Advantage

In a competitive market, consumers are presented with several options. So why would a potential customer bring their business to you rather than the competition? The easy answer is consumer financing. 

More than ever, consumers are searching for businesses that meet their needs, especially their financial needs. Therefore, offering consumer financing options when your competitors don’t can be a surefire way to attract a larger client base.

  • Better Customer Satisfaction and Retention

Likewise, offering financing to customers financing increases your customers’ experience with your business. As a result, the better the experience, the more likely your existing clientele will return and refer others.

The Benefits of Customer Financing for Your Clients

Similarly, financing is also a win for your clientele. Here’s how:

  • More Financial Flexibility

Giving your customers the flexibility to pay in smaller installments allows them to receive the products and services they need now without straining their budgets. 

  • Higher Approval Chances

In many cases, third-party providers have a large lender network, which translates into more financing opportunities. These lenders may also be willing to work with subprime customers. Ultimately, your customers enjoy more opportunities to find financing options. 

  • Hassle-Free Applications

Many third-party providers streamline the consumer financing process by offering online applications. For instance, the consumer can enter preliminary financial and credit information to see if they prequalify. Often, consumers may receive on-screen results in minutes. 

The Risks to Consider

Before offering financing to your customers, weigh these potential risks:

  • Service Fees

Regardless of whether you provide in-house financing or operate through a third-party financier, there will be a cost in creating the new service. Be it training a new team or paying a third party, that cost must be considered in the profitability of offering financing to customers. 

  • Adjustment Period

When your business starts offering consumer financing, it may take a while to promote and advertise the new opportunity. As a result, your business may not see immediate increases in revenue, sales, or customers. However, as you begin marketing consumer financing through several channels, you can begin to reap the benefits of the new financing option.

How to Offer Financing to Customers with Finturf

Financing with Finturf is a hassle-free process for your business and customers. Here is the process for merchants offering financing to customers with Finturf:

  1. A merchant, service provider, or contractor sells a product or service to a consumer who would like to use financing to make the purchase more affordable.
  2. The consumer or client will submit their personal and financial information for prequalification. Typically, prequalification involves a soft credit check.
  3. The request will be routed through Finturf’s network of partnered lenders.
  4. If approved, the consumer will receive one or more financing options, including payment terms, interest rates, and conditions.
  5. The consumer or client will complete the loan process with the lender and set up a repayment plan.
  6. Merchants will receive funds directly from Finturf or the lender.

Who Can Offer Financing with Finturf?

Finturf partners with a large lending network catering to service providers and merchants that want to offer financing to make their products and services more affordable. Finturf offers financing to underserved merchants, such as small retail businesses.

Additionally, Finturf works with medical service providers like chiropractors, dentists, plastic surgeons, and ophthalmologists. Finally, contractors in general home improvements, roofing, flooring, and HVAC can offer contractor financing for customers through Finturf.

Customer Financing Alternatives

If the product described above doesn’t sound like the right fit for your business, there are other options out there. Here are some of the top picks for when customer financing doesn’t work out:

  • Offer a layaway plan so the customer can obtain the desired item or service after finishing paying for it over a specified period.
  • Set up a leasing option where the customer receives the item upfront and pays to keep it. When the customer no longer wants the item, they simply stop paying, and you get it back.
  • Let the customer lease-to-own. This works the same as above, except the customer can eventually keep the item after making a certain number of payments.
  • Connect the customer to a direct lender who can offer them a personal loan. After the customer receives the loan money, they can turn around and pay you for the product or service.

What’s the Difference Between ‘Customer Financing’ and ‘Consumer Financing’?

Customer financing refers to in-house or third-party financing options offered at a specific business’s point of sale. Meanwhile, consumer financing is a broader term inclusive of all forms of funding supporting consumer spending habits, including credit cards, installment loans, buy-now-pay-later services, etc. While these phrases are commonly used interchangeably, you can differentiate the terms in that customer financing exists as a subset within the wide-ranging category of consumer financing.

Bottom Line

Consumer financing is a potent tool that gives customers purchasing power, which can lead to increased ticket sizes and a larger consumer base. Offering consumers low monthly payment plans also helps businesses stay competitive, improve customer satisfaction, and, most importantly, turn browsers into buyers.

FAQs

How Difficult Is It to Set up Payment Plans for Customers?

When you sign up with a point-of-sale financing company like Finturf, you don’t have to worry about setting up payment plans. We do all the heavy lifting for you. You simply send your clients a link to apply for financing. If approved, the financial institution will pay you while collecting payments over time from the customer.

Are There No-Credit and Low-Credit Customer Financing Options Available?

Finturf’s financing partners approve up to 85% of applicants in certain industries. While lending is not guaranteed, there is a good chance your credit-challenged customers will be able to find a solution.

How Much Is Customer Financing for Businesses?

Finturf gives you the power to choose how much you pay for customer financing. We allow you to filter lenders by merchant fees. Reach out for a demo, and we will show you how it works. Explore our pricing options or reach out to us for more info.

What Is the Best Financing for Small Business Customers?

There are many different types of customer financing options out there. Some work better than others, and it usually all depends on the product or service being sold. For instance, a lease-to-own solution may work best for a credit-challenged consumer in need of a new HVAC system. That’s why it’s best to partner with a point-of-sale financing company with a lot of options.

Can I Offer Third-Party Financing to My Customers?

Find out now by signing up right here. We invite you to sign up for a merchant account. If you have any questions along the way, a member of our sales team will be happy to answer them.

How to Know if Customer Financing Is the Right Choice for Your Business?

If your business sells high-ticket products, customer financing helps a wider consumer base afford your goods or services. Additionally, if your business experiences strong lead volume but low conversion rates, especially due to price objections, customer financing may be the right choice for your business. However, even with high-ticket items, it’s best to perform a cost-benefit analysis to confirm your profit margins are substantial enough to support the added costs associated with offering customer financing.


Martha Pierson

Content CreatorMartha Pierson is a marketing strategist and business development expert based in Glendale, California. As a content creator for the Finturf blog, Martha shares her vast knowledge and experience with readers to help them build and sustain successful businesses. Her articles offer practical tips and actionable advice that entrepreneurs can implement immediately to achieve their goals. Martha also provides insightful analysis of current trends across different industries and offers expert guidance on how businesses can adapt to changing market conditions.

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