Offering credit to customers can be a great way to boost sales and build stronger relationships. However, it's not a decision to take lightly. Extending credit involves providing goods and services upfront and allowing the customer to pay later, which brings both benefits and risks. So, how do you decide if offering financing to your customers is right for your business? Let’s explore the pros, cons, and factors to keep in mind. 

What does offering financing to customers really mean?

In simple terms, offering financing to customers allows your customers to take their goods or services home today and pay later. It might be through payment plans, trade credit agreements, or instalment steps. Essentially, you’re putting trust in your customers to pay what they owe in the future. Sounds a bit risky, right? Well, a lot of businesses find that this option doesn’t just help customers, it also opens up more opportunities for growth by improving sales and cash flow. 

The benefits of offering financing to customers

Now, let’s take a look at what the benefits are of offering financing to your customers. 

Boosted sales

One of the biggest perks of offering financing to your customers is the potential for bigger sales. Think about it - if a customer doesn’t have to pay the full amount upfront, they might be tempted to spend more, especially on more expensive items. 

For example, if you run a furniture store and a customer is eyeing a pricey sofa, they might walk away without purchasing it. But if you offer a flexible payment plan, suddenly the sofa seems a lot more affordable, and you’ve likely secured a sale. 

Building loyalty 

When you trust your customers by offering them flexible payment terms, they tend to stick around. It’s like building a relationship - when people feel valued and trusted, they’re more likely to come back, refer others, and become loyal clients. 

Imagine running a small boutique and allowing a loyal customer to spread payments on an expensive dress they love. You’re not just selling a product; you’re building a connection that could turn them into a repeat customer. 

Standing out from competition

If you offer financing to customers, it can make you stand out, especially if your competitors are sticking to cash-only sales. If you’re in an industry where big purchases are common, like construction or retail, giving your customers the option to pay later could be a huge selling point. If you run a renovation business, offering credit could make you the go-to choice over competitors who require large upfront payments. 

The risks you need to consider

So, what are the risks that need to be considered when offering financing to your customers?

Cash flow impact

One of the biggest concerns with offering financing to your customers is the potential of  your cash flow being impacted. When you’re waiting for customers to pay, your immediate cash on hand could be affected, which might cause hiccups in day-to-day operations. If you’re a small business with tight cash flow, a few delayed payments could put a strain on how you cover expenses like payroll or inventory. 

Risk of non-payment

There’s always a risk that customers might not pay on time, or worse, not pay at all. Bad debt can eat into your profits quickly. To reduce this risk, it’s crucial to vet your customers before offering credit. You don’t want to end up chasing money that’s never going to come. If you’re a supplier, running a credit check on a potential customer could help you catch any red flags, like a history of late payments. 

Things to think about before offering financing to your customers

Before you decide to offer financing to customers, consider these factors: 

• Can your cash flow handle it? If delayed payments could leave you in a tight spot, so  it may be worth reconsidering. 
• Do you have a system in place? You’ll need a clear process for deciding who qualifies for credit and how to handle late payments. 
• Can you manage the risk? Make sure you have measures in place, like credit checks or credit monitoring services, to help you minimise the chance of non-payment. 

Whether or not offering financing to your customers is right for your business comes down to your financial situation, your customers’ needs, and how comfortable you are with risk. If your business is in a good financial place and you’ve got a clear policy in place, offering credit could help you boost sales and build lasting customer relationships. 

On the flip side, if your cash flow is already tight, or you’re worried about taking on too much risk, it might be best to hold off - or only offer finance to customers you’ve worked with before and trust. At the end of the day, you know your business best, so weigh up the pros and cons carefully before making your decision. 

If you feel you  need more information on offering financing to your customers, make sure to contact Creditserve on 01992 414222  today!