As a seller of products or services, you might think you’ve seen it all when it comes to customer financing. Standard solutions, straightforward process – it all seems to work just fine – until your customer gets denied. You then reach into your network of other lenders to see if you can find a way to offer your customer financing.
You may try two or three options, which is time-consuming and not a great experience for your employees or your customers. But what if there’s a way to elevate your customer financing approach, transforming it from a process that works to a process that is exceptional?
Waterfall financing transforms the point-of-sale financing process by taking a single loan application and running it through a sequential check against multiple lenders. It can maximize approval chances and reduce the hassle for the customer with a single application.
In this blog, we will explore what is a waterfall in finance, its pros and cons, and why you should partner with a Software as a Service (SaaS) provider offering this perk.
Waterfall financing is an innovative approach that enhances the consumer financing process. Here’s how it works: when a consumer applies for financing, their application is systematically routed through a series of lenders – known as “first-look,” “second-look,” “third-look,” and so on.
Each lender in the sequence, or waterfall, to different credit profiles and lending criteria. This isn’t just a random sequence; each level caters to different credit profiles and lending criteria. The “first-look” lender typically has the lowest APRs and monthly payments, the highest eligibility criteria, requiring excellent credit scores. If the first-look lender declines, the consumer’s application cascades down to “second-look” lenders, who are often more accommodating, catering to varied credit histories.
In some cases, it may even reach “third-look” lenders, who specialize in financing for those with challenging credit situations. This multi-tier approach seeks out multiple avenues for potential approval, significantly boosting the consumer’s chances of securing financing.
For businesses, waterfall financing means a more efficient, inclusive financing solution, potentially increasing market reach and enhancing customer experiences.
Understanding the mechanics of waterfall financing is just the beginning. As with any financial model, it comes with its own set of advantages and challenges. Businesses must weigh the pros and cons to determine if waterfall financing fits their business model and effectively meets customer needs.
The benefits to businesses include the following:
However, companies must also weigh the drawbacks to make a balanced decision. Here are some of the cons of waterfall financing:
For customers, waterfall financing benefits them in the following ways:
While this financing approach does increase accessibility for customers, there are also drawbacks to consider, including:
As a service provider, embracing waterfall financing hinges on a deep understanding of your business dynamics and customer needs. This approach is particularly beneficial if you find that your customers often face challenges with traditional lending options.
Waterfall lending caters to a diverse financial spectrum, significantly enhancing approval chances, especially for those who might not meet the stringent criteria of prime lenders. If your current financing system yields high rejection rates, transitioning to a multi-lender waterfall model finance could be a strategic move. This shift not only has the potential to increase approval rates but also to drive sales and elevate customer satisfaction.
Implementing waterfall financing can be a strategic move to enhance your service offerings and customer relations. This financing model directly benefits your business by significantly broadening the spectrum of customers you can serve. By providing a more customer-centric financing experience, your business can stand out in a competitive market, fostering stronger customer loyalty and long-term business growth.
As you consider the benefits of waterfall financing for your business, it’s worth exploring solutions like those offered by Finturf. Finturf provides turnkey, cloud-based point-of-sale financing software equipped with a built-in waterfall algorithm. The ready-built financing software seamlessly integrates into your existing systems, enabling you to offer in-house financing directly to your clients.
By adopting a solution like Finturf, your business can seamlessly implement waterfall financing, enhancing customer financing options without the complexities of managing multiple lender relationships.
Why continue using mediocre financing software, especially when consumer demand for flexible, accessible options is increasing? With consumers citing ease of use and flexibility as the top reasons for using financing, businesses must cater to these preferences to stay agile.
Finturf helps businesses meet these consumer demands by offering a financing solution with a pre-built waterfall algorithm. As a result, Finturf makes turnkey in-house financing seamless and hassle-free for businesses. Here are some standout features of Finturf’s waterfall:
If you still have some questions, check out this FAQ section for clarification:
Waterfall financing can significantly enhance customer retention. By providing a range of financing options that cater to different credit profiles, businesses using waterfall financing can increase the likelihood that their customers will secure funding. This flexibility and higher approval rate lead to increased customer satisfaction, fostering loyalty and repeat business.
Integrating a waterfall financing system will depend on the SaaS provider, but the process is fairly quick. For instance, once approved as a merchant by Finturf, integrating a waterfall financing system into your business takes less than an hour.
Waterfall financing is particularly effective in industries with a wide range of customer financial profiles or where high-ticket purchases are common. This includes sectors like retail, home improvement, medical services, and automotive. In these industries, the flexibility and increased approval rates offered by waterfall financing can significantly boost sales and customer satisfaction.
Yes, waterfall financing can be tailored to align with your business’s specific credit risk appetite. Platforms like Finturf allow businesses to choose which lenders they work with and the financing offers that are presented to customers. This customization enables businesses to manage their credit risk exposure while offering various financing options to meet their customers’ needs.
Embracing waterfall finance can be a game-changer for your business, offering a broader reach and enhanced customer satisfaction. It’s about finding the perfect balance for a hassle-free request process for you and your customers. Discover more with Finturf and unlock the potential of tailored customer financing solutions.
