Offering Customer Financing: Guide For Business Owners

Published: May 12, 2021, Last Updated: February 14, 2024

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Writer: Martha Pierson
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Editor: Anais Osipova
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Reviewer: Michael Needham

It’s no wonder customer financing has boomed in popularity as it offers more budget-friendly payment options. With consumer financing, buyers are no longer obligated to pay for large-sum products or services upfront and in full. Instead, they are given the flexibility to pay in budget-friendly installments.

But what does this shift to customer financing mean for businesses? The benefits to consumers are obvious, but at the same time, businesses gain more customers, make more sales, and generate more revenue.

Whether you are just learning about customer financing or need help deciding what model to use, read on to learn some options.

What Is Customer Financing?

Customer financing is the opportunity for customers to pay for products or services via payment plans or installments. Without paying the entire amount upfront, consumer receive the products or services as soon as the same day while paying for them later over time. This can help boost sales for the business and increase product accessibility for the consumers.

How Does Customer Financing Work?

Customers can apply for a loan or other financing option to divide the total cost of an 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 a split payment, personal loan, line of credit, leasing product, or another form of financing.

Companies 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

The first method is providing in-house customer financing, where the merchant becomes a lender. The second method is to use third-party customer financing and partner with a point-of-sale (POS) financing company.

Choose The Type of Financing

If you’re ready to start offering customer financing, you can choose between in-house funding or partnering with a third-party financing provider.

Shopper paying with buy now, pay later financing

Let’s take a look at the differences between each framework. 

Customer Financing With Your Own Money

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.

In-house financing avoids outsourcing any management, giving the business more visibility and control in the lending process and more 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.


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 customer 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 loan is not paid. 

Third-Party Customer Financing

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

Close up on consumer using phone to pay

In addition to alleviating some risks, third-party providers also offer businesses full funding within a few days. Regardless of whether loan is paid back or not, your business will be reimbursed, increasing your cash flow.

While partnering with a third-party financing provider is often preferred, the associated costs of utilizing their services are one downside. For instance, businesses using third-party providers to offer customer 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. 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 that have bad credit. 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.

Choose a Reliable Customer Financing Provider

If third-party solution seems like the best option, your business 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

To attract new clientele and get a leg up on the competition, create marketing campaigns that promote your new financing options.

Send 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

Financing gives customers more flexibility and accessibility to receive the products and services they need without the obligation to pay in full immediately. Additionally, eligible consumers can 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, clients are presented with several options. So why would a potential customer bring their business to you rather than the competition? The easy answer is financing. 

More than ever, consumers are searching for businesses that offer customer financing options that is 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 Financing For Your Customers

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 customer financing process by offering online applications. 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 Of Customer Financing To Consider

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

  • Cost

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

  • Adjustment Period

When your business starts offering customer 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 your 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 that caters to merchants, 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, ophthalmologists and others. Finally, contractors in general home improvements, roofing, flooring, HVAC and others can offer financing through Finturf.

Bottom Line

Customer 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.

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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