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How to offer financing to customers
Give your customers more time to pay with point-of-sale lending.
Point-of-sale (POS) financing helps connect merchants — especially those with high-ticket prices — with customer financing options. If you’re looking for opportunities to get ahead of the competition, offering financing in-house or through a third-party lender could be what your business needs.
What's in this guide?
- What is point-of-sale financing?
- How does point-of-sale financing work?
- What businesses can benefit from POS financing?
- What are my third-party financing options?
- How much does POS financing cost?
- Benefits and drawbacks of POS financing
- How do I compare POS financing providers?
- Can I offer in-house financing?
- Bottom line
- Frequently asked questions
What is point-of-sale financing?
Merchants use POS financing to offer customers a payment plan to cover the cost of big-ticket items. Instead of purchasing outright, customers can choose to finance from a third-party provider like Affirm or Klarna.
How does point-of-sale financing work?
POS financing essentially modernizes a service that’s traditionally used by furniture and home appliance merchants. Businesses quickly verify a customer’s income and expenses at the point-of-sale to offer credit. If approved, customers are offered a minimum monthly payment, interest rate and enter into an agreement to pay off their purchase over time.
Brick-and-mortar merchants can offer financing through an existing in-store checkout system or tablet, while online merchants can integrate customer financing directly into the checkout page of their online store.
Why offer customer financing?
Financing can act as a powerful conversion tool, turning “I can’t afford this right now,” into: “I’ll take it.” This holds especially true for businesses with costly products and services. Financing options give customers that lack upfront cash the opportunity to make a purchase — and increase your sales.
What businesses can benefit from POS financing?
The best candidates for point-of-sale financing are businesses with high-ticket products and services that cost $500 or more. While what constitutes as an expensive purchase varies from customer to customer, whether a customer needs to rely on a credit card to complete the purchase is typically a fair benchmark.
Businesses that sell the following products can benefit from offering customer financing:
- Digital cameras
- Home appliances
- Jewelry and watches
- Musical instruments
- Swimming pools
As with any lender, the minimum loan amount will vary from one provider to another. You’ll want to try for a minimum that matches your inventory or services, but consider other features to address you and your customers’ needs.
What are my third-party financing options?
There are two ways to access third-party financing — partnering with a dedicated lender or by using a POS provider that offers an integrated financing feature.
Providers like LendingUSA, Viabill and Afterpay are dedicated customer financing lenders. To sign up, you’ll need to schedule a call or complete an online application on the lender’s website.
Expect to provide information about your business, including your federal tax ID, annual revenue, average ticket price and more. Some providers specialize in online lending, while others offer in-store financing.
It’s also possible to offer customer financing through your point-of-sale provider. This is convenient because it doesn’t require an external application. Customer financing is offered as a bundled feature for all onboarded merchants without any necessary additional software.
Square’s all-in-one processing service is well suited to small businesses that process transactions in person and online.
- Get a free card reader when you sign up
- Pay 2.6% + $0.10 for all tapped, dipped and swiped payments
- No cancellation fees
How much does POS financing cost?
The cost of using a third-party provider varies depending on the size of your business and your annual turnover. Your provider analyzes your business credentials and makes you an offer based on your circumstances. Merchants may be charged:
- Transaction fees. A small fixed fee between $0.20 to $0.30, and a percent of the sale between 2% to 6%.
- Monthly fees. The monthly fees providers charge vary — and some can be high, so shop around.
- Setup and training fees. A one-time fee before you offer financing to your customers.
Some providers make money by offering interest-free introductory periods to customers that eventually earn interest. Others charge the customer high fees while charging the merchant less — or vice versa. Carefully read through the fine print and compare providers to find the best for your business.
Benefits and drawbacks of POS financing
- Simple application. Customers can apply for financing on the spot and may even be able to see their rates without a hard-credit check.
- Integrated marketing. Some providers allow you to advertise financing on your online store.
- Quick. There’s no waiting — customers can buy and receive purchases on the spot.
- Increased conversions. Financing options can help buyers decide to buy more, increasing your bottom line.
- Declined applications. Though buyers don’t need perfect credit to qualify, not everyone is approved for a loan. Ask a provider how it handles loan denials and if customers can reapply.
- 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, like minimum monthly quotas.
- May require hardware. All providers may not work with your existing devices, and extra equipment can be costly.
- Loan minimums. There’s the possibility that a lender won’t have a minimum amount of financing that meets your needs.
How do I compare POS financing providers?
When considering providers, keep both the needs of your customers and the needs of your business in mind.
- Minimum amounts. Try to align the minimum lending amount with the average costs of your product. If you can’t find a provider that matches your minimum, you might not need to offer financing.
- Fees. Typically, both merchants and customers pay a fee for POS financing, but some lenders charge more than others. Review all of the terms before agreeing to a provider.
- Application process. Make sure the application process is simple — if the process is so difficult that your customers abandon their cart.
- Mobile support. Depending on your industry, customers may require access to their loan from a mobile app.
- Who assumes the risk. Avoid taking a hit because a borrower defaults. Confirm that the provider takes on the credit risk.
- Available loan terms. Find out if it offers short- or long-term loans. Long-term loans are better for larger purchases, but could cost your customer more in interest. While short-term loans can come with no or little interest, but more expensive purchases can have have high monthly payments.
- Promotions and rewards. Some providers offer 0% interest financing, but only for qualified businesses.
- Funding time. Confirm how long it takes to receive the cash from your sales.
- Extra equipment. Find out if you need to buy new hardware to support the provider’s services.
Can I offer in-house financing?
You can — but businesses that use in-house financing take on the risk of payment plans lending using their money. This type of financing can take time and be risky — especially for small businesses. Not only will you need to vet the customer yourself, but you’ll also be on the hook for missed payments from delinquent borrowers.
If you plan to provide in-house credit to customers, you’ll need to gather the following information:
- Customer contact details like name, address, phone number, email
- Signed confirmation that they understand your terms and conditions
- Permission to conduct a credit check
In-house financing is best suited to large businesses able to take on more risk and devote more resources to a financing department. Explore your financing options with third-party providers before you opt for in-house financing.
Offering customers payment plans for large-ticket items can be a solid conversion tool for buyers who are on the fence. But make sure you weigh your options carefully before committing to a provider.
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