Everything you need to know about offering finance to customers

Introduction to Offering Finance to Customers

In today’s competitive retail landscape, businesses are continually looking for ways to enhance customer experience and increase sales. One of the most effective strategies that has gained popularity is offering finance options to customers. By allowing customers to spread the cost of their purchases over time, businesses can make their products or services more accessible and appealing to a wider audience. Whether you're a small business owner or managing a large retail chain, offering finance can be a powerful tool to boost sales and customer satisfaction.

In this comprehensive guide, we’ll explore everything you need to know about offering finance to customers, including the benefits, how it works, what to consider, and how Kandoo, a UK-based retail finance broker, can help you implement the right solution for your business.

Why Offer Finance to Customers?

Increased Sales and Higher Conversion Rates

One of the primary reasons businesses choose to offer finance options is to increase sales. Many customers are more likely to make a purchase if they have the option to spread the cost over a period of time, especially for higher-ticket items. By breaking down a large upfront cost into manageable monthly payments, customers feel less financial pressure, which can lead to higher conversion rates.

Offering finance can also encourage customers to upgrade to more premium products or services, as they no longer have to pay the full price upfront. For example, a customer looking at a basic model of a product may opt for a more expensive version if they can spread the cost over several months.

Improved Customer Loyalty and Satisfaction

Providing finance options shows that you understand your customers' needs and are willing to accommodate their financial situations. This level of flexibility can build trust and loyalty, as customers feel that you are offering them more choices and making their buying experience easier.

Moreover, offering finance can make your business stand out from competitors who may not provide this option. In a crowded marketplace, this added convenience can make a significant difference in customer retention and satisfaction.

Expanding Your Customer Base

By offering finance, you can appeal to a broader range of customers, including those who may not have the immediate funds to make a purchase but are willing and able to commit to monthly payments. This opens up your business to a new segment of customers who may have otherwise been unable to afford your products or services.

For example, young professionals or families on a tight budget may be more inclined to buy from you if they can spread the cost over time. In essence, offering finance can help you attract customers from different financial backgrounds and increase your overall market reach.

How Does Offering Finance Work?

Types of Finance Options

There are several different types of finance options that businesses can offer to customers, depending on their products, services, and target audience. Below are some of the most common finance options available:

1. Interest-Free Credit (0% Finance): This option allows customers to spread the cost of their purchase over a set period without paying any interest. It’s a popular choice for both businesses and customers, as it provides a straightforward and attractive payment plan.

2. Buy Now, Pay Later: This option allows customers to delay payment for a certain period (e.g., 30 or 90 days). After the delay, they can either pay the full amount or opt for a longer-term finance plan. This is particularly appealing for customers who need time to organise their finances before committing to monthly payments.

3. Interest-Bearing Credit: With this option, customers pay interest on their finance agreement over the term of the loan. The interest rate is usually agreed upon at the time of purchase and spread across the monthly payments. While not as appealing as interest-free credit, it still provides customers with the flexibility to spread payments.

4. Hire Purchase: This is a finance option where the customer hires the product from the business and makes monthly payments. Once all payments are made, the customer officially owns the product. This is commonly used for high-value items such as cars or machinery.

5. Personal Loans: In some cases, customers may apply for a personal loan to finance their purchase. The loan is usually arranged through a third-party lender, and the customer makes monthly payments directly to the lender.

How to Offer Finance to Customers

Offering finance to customers involves partnering with a finance provider or broker who can manage the credit checks, loan agreements, and payment collection on your behalf. In the UK, businesses must be authorised by the Financial Conduct Authority (FCA) to offer credit directly to customers. However, by working with a finance broker like Kandoo, businesses can avoid the need for direct FCA authorisation.

Once you’ve partnered with a finance provider, the process is typically straightforward:

1. Customer Application: When a customer decides to purchase an item on finance, they’ll complete a finance application either online or in-store. This application is usually quick and requires basic personal and financial information.

2. Credit Check: The finance provider will conduct a credit check to assess the customer’s ability to repay the loan. If the customer is approved, they’ll receive the finance agreement terms.

3. Finance Agreement: The customer signs the finance agreement, which outlines the loan amount, interest rate (if applicable), repayment schedule, and any other terms. Once signed, the customer can proceed with their purchase.

4. Repayment: The customer makes monthly payments directly to the finance provider over the agreed term. The business receives the full payment upfront from the finance provider, minus any fees or commission.

Key Considerations When Offering Finance

Compliance with Regulations

As mentioned earlier, offering finance in the UK is regulated by the FCA. If you plan to offer finance directly, you’ll need to be authorised by the FCA and comply with strict rules regarding transparency, affordability checks, and customer protection. However, by working with a finance broker like Kandoo, you can bypass this regulatory burden, as the broker will handle all compliance requirements on your behalf.

Understanding Your Customer Base

Before offering finance, it’s essential to understand your customer base and whether they would benefit from this option. For example, if you sell high-ticket items such as furniture, electronics, or luxury goods, offering finance could significantly boost sales. However, for lower-cost items, finance may not be as attractive or necessary.

You should also consider the types of finance that would best suit your customers. For instance, younger customers may prefer interest-free credit or buy now, pay later options, while older customers might be more comfortable with traditional hire purchase agreements.

Managing Costs and Risks

While offering finance can increase sales, it’s important to be aware of the costs involved. Most finance providers charge a fee or commission for their services, which could impact your profit margins. Additionally, you may need to invest in technology or staff training to manage the finance process effectively.

There is also a risk of customers defaulting on their payments, although this risk is typically borne by the finance provider rather than the business. Nevertheless, it’s crucial to work with a reputable finance partner who has robust credit-checking processes in place.

How Kandoo Can Help

Kandoo is a UK-based retail finance broker that specialises in helping businesses offer flexible finance solutions to their customers. With years of experience in the finance industry, Kandoo works with a wide range of trusted lenders to provide tailored finance options that meet the needs of both businesses and customers.

Why Choose Kandoo?

1. Wide Range of Lenders: Kandoo partners with multiple lenders, ensuring that your customers have access to a variety of finance options. Whether your customers are looking for interest-free credit, buy now pay later, or traditional loans, Kandoo can help you find the right solution.

2. FCA Authorised: As an FCA-authorised broker, Kandoo ensures that all finance agreements are fully compliant with UK regulations. This means you can offer finance to your customers without worrying about the legal complexities of obtaining FCA authorisation yourself.

3. Easy Integration: Kandoo’s finance solutions are designed to be easy to integrate into your existing sales process, whether you operate online or in-store. Their user-friendly platform allows for quick customer applications and instant credit decisions, making the finance process seamless and efficient.

4. Dedicated Support: Kandoo provides dedicated support to businesses throughout the finance process, from setting up your account to managing customer applications. Their team is always on hand to answer questions and ensure that everything runs smoothly.

Benefits for Your Business

By partnering with Kandoo, your business can enjoy the following benefits:

• Increased Sales: Offering flexible finance options can help you close more sales and attract new customers.
• Enhanced Customer Experience: With a variety of finance options to choose from, your customers will appreciate the flexibility and convenience.
• Compliance Assurance: Kandoo handles all regulatory requirements, giving you peace of mind and allowing you to focus on growing your business.

Conclusion

Offering finance to customers is an excellent way to boost sales, improve customer loyalty, and expand your market reach. By partnering with a trusted finance broker like Kandoo, you can provide flexible finance options without the hassle of managing the process yourself. Whether you’re a small business or a large retailer, implementing a finance solution can be a game-changer for your bottom line.

As you consider offering finance, remember to assess your customer base, understand the costs involved, and ensure compliance with UK regulations. With the right strategy and support, offering finance can help you take your business to the next level.