Offer your customers the financing they need without the credit risk that comes with lending.
When your business offers high-cost services or products, it can be frustrating to lose customers before they really start to shop. Layaway programs can be convenient but not feasible for all customers or products. With the rapid growth of online payment options, there’s a solution for your business.
Since 2015, point of sale (POS) financing has grown to support merchants and providers with consistent high average order value. This guide takes you through the how, who and what of POS financing to help you make the best choice for your business.
How does point of sale financing work?
POS financing comprises of two subsections: online merchants and in-person financing. Online merchants can integrate customer financing directly on their existing websites. This type of POS financing can be as basic as showing a credit option at checkout to laying out a payment-per-month price on every high-ticket item that’s offered.
For in-person financing, providers can link up to your business through an existing checkout system or tablet. A few providers even let customers use their own smartphone to run a financing app.
This kind of POS financing essentially modernizes a service that’s traditionally used by furniture and home appliance merchants, whereby a business quickly verifies a customer’s income and expenses at the point of sale to offer credit for the purchase. When a business uses a POS financing provider, it’s also choosing not to take on the intrinsic credit risk of underwriting its own financing options.
What businesses can benefit from POS financing?
Typically only businesses with high average order value will benefit from POS financing. If your business provides goods or services that are relatively expensive and could require credit for the average customer to purchase them, you could potentially benefit from this financing options.
Just as with any lender, the minimum loan amount will vary from one POS financing provider to another. You’ll want to try for a minimum that matches your inventory or services, but consider other features to address both your and your customers’ needs.
Where can I get point of sale financing?
Our top pick: LendingUSA Point of Sale Financing
- Live chat available.
- Gain more approvals.
- Simple online process.
- In-full payments.
Our top pick: LendingUSA Point of Sale Financing
- Min. Loan Amount: $1,000
- Max. Loan Amount: $35,000
- Requirements: Must have a business in the elective medical or consumer services industry.
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How do I compare POS financing providers?
When considering providers, keep both the needs of your customer and the needs of your business in mind.
- Minimum amounts. Try to align the minimum costs with the minimum cost of your product. If you can’t find a provider that matches your minimum, it may say something about your need to offer financing.
- Your costs. With most providers, you will pay to set up and use its services. Weigh how much it will cost you to set up services and train your employees against how much you’ll pay per sale and in monthly minimums.
- Application process. There’s little point in offering a financing solution if the process is so difficult that your customer leaves before completing the application.
- Mobile support. Think about how your average customer might pay their bills and manage their finances. Depending on your industry, accessing their loan info on the go may be essential.
- Who assumes risk. In most cases, the provider who takes on the credit risk. But confirm this ahead of time to avoid getting stuck without payment if a customer defaults.
- Available loan terms. The higher the average order value, the longer the maximum loan term you’ll want available. Shorter-term loans help customers pay less interest, but they can come with unmanageable monthly payments.
- Promotions and rewards. Just as credit cards can offer no-interest promotions, so do some of financing solutions.
- Hidden fees. Fees are a pain for your business and can leave your customers feeling dissatisfied. Review all of the terms before agreeing to a provider.
- Funding time. Confirm how long it will take for you to receive the cash from your sales.
- Extra equipment. Ask if you’ll need to buy new hardware to support the provider’s services.
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Benefits and drawbacks of POS financing
- Easy financing for your customer. Your customer can apply for financing on the spot.
- Integrated marketing. Some providers will allow you to advertise financing on every part of your product.
- Easy to use. Applications tend to be easy, and some let customers see their rates without a hard credit check.
- Gets your customer their goods now. Rather waiting with a layaway plan, your customers can buy and receive purchases on the spot.
- Declined applications. It can be awkward when a customer is denied a loan, and it could lead to them abandon their purchase. You can ask how the provider handles a denial and see if there’s an opportunity for retention.
- Many costs. You’ll pay to use the provider’s services, whether as a percentage of the charge or a monthly fee. To avoid surprises, ask about any other fees or charges, such as those associated with minimum monthly quotas.
- May require hardware. All providers may not be able to work with your existing devices, and extra equipment can be costly.
- Loan amount may not meet your minimum. There’s the possibility that a lender won’t have a minimum amount of financing that meets your needs.
What are the costs of POS financing?
Depending on the lender, POS financing could come with a single cost. Some providers charge only a percentage of your sales financed through it or offer discounted rates.
Other providers, however, can be more costly. Monthly maintenance fees, setup fees, training and minimum monthly quotas can be stacked on top of the base cost for services. Carefully compare providers to ensure that the one you choose is best for your business.
I’m from Nairobi Kenya, can I apply for a loan?
Hi Rose,
Thank you for reaching out to finder.
Though our Kenya website for finder has no article specific to personal loans that you may be able to take out, you may reach out to local lenders or banks in your area to check your eligibility in taking out a loan with them. Hope this helps!
Cheers,
Reggie