How Customer Finance Can Boost Sales for Your Business

Why Customer Finance Matters for UK Businesses

In today’s competitive landscape, offering customer finance is no longer a nice-to-have—it’s a strategic tool for driving sales, increasing average order values, and attracting new customers. By enabling your customers to spread payments, you can remove price barriers and position your business for sustained growth.

Who Should Consider Offering Customer Finance?

If your business sells products or services with a moderate to high ticket price, or operates in sectors like retail, home improvement, healthcare, or automotive, customer finance may be a valuable addition. It particularly suits businesses seeking to improve sales conversion rates and appeal to budget-conscious buyers.

Key Concepts and Terminology

Before integrating finance solutions, it’s important to understand some fundamental terms:

• Customer Finance: Also known as point-of-sale finance, this allows customers to pay in instalments via a third-party lender.

• APR (Annual Percentage Rate): The yearly cost of borrowing, shown as a percentage. Lower APRs are often more attractive to customers.

• Interest-Free Credit: An arrangement where customers pay no interest if they settle within an agreed period.

• Deposit: An upfront payment required before finance can be approved.

• Repayment Terms: The duration over which the customer pays off the finance, which can range from 6 months to several years.

• Broker vs. Lender: A broker (like Kandoo) connects businesses and customers to suitable lenders but does not lend directly.

Understanding these concepts ensures you can confidently discuss finance with both your team and your customers.

Types of Customer Finance Options

Businesses can access a range of finance products to suit different customer needs:

• Interest-Free Credit: Customers pay back only what they borrow, ideal for driving sales of higher-value items. Popular for electronics and furniture retailers.

• Interest-Bearing Loans: Customers pay a set interest rate. These options typically offer longer terms and lower monthly payments.

• Buy Now, Pay Later: Customers defer payment for a set period, then repay in full or in instalments. Useful for seasonal promotions or new product launches.

• Deferred Payment Plans: Payments start after a grace period, easing the initial financial burden for customers.

Partnering with a reputable finance broker ensures access to a broad panel of lenders and tailored solutions for your business model.

Financial Impact: Costs, Returns, and Risks

Customer finance can have a transformative impact on sales, but it’s important to consider both benefits and potential costs:

Benefits:

• Increased average order values (AOV)

• Improved sales conversion rates

• Enhanced customer loyalty and repeat business

Costs:

• Some finance providers charge a subsidy or commission fee (typically 2-8% of the transaction value)

• Administrative time and resources to manage finance applications

Risks:

• Customers may default on payments (though this is typically managed by the lender, not your business)

• Regulatory responsibilities (e.g., ensuring compliance with FCA rules)

A clear understanding of these factors will help you make an informed decision about offering finance.

Eligibility and Requirements

To offer customer finance, your business must typically:

• Be registered and trading in the UK

• Meet minimum turnover requirements (often £100,000+ per year)

• Have a good credit and trading history

• Be able to demonstrate compliance with relevant consumer credit regulations

Some finance options require FCA authorisation, while others can be offered under a broker’s licence. Partnering with an experienced finance broker simplifies these processes.

How Customer Finance Works: Step-by-Step

1. Customer selects products or services

2. Finance option is presented at checkout

3. Customer completes a finance application

4. Lender conducts a credit check

5. Application is approved or declined

6. Customer signs the finance agreement

7. Funds are released to your business

8. Customer begins repayments as agreed

Weighing Up the Pros and Cons

Pros:

• Attracts new customers who might not purchase otherwise

• Boosts average transaction values

• Enhances cash flow, as funds are paid upfront by the lender

• Offers a competitive edge in crowded markets

Cons:

• May involve setup fees and ongoing commissions

• Staff training required to handle finance queries

• Possible regulatory obligations

Balancing these factors is key to long-term success.

Points to Consider Before Offering Finance

• Customer Demand: Assess whether your customers would benefit from finance options

• Provider Reputation: Choose established, FCA-regulated brokers and lenders

• Training Needs: Ensure staff understand how to offer and explain finance options

• Marketing: Promote finance availability clearly to maximise uptake

• Compliance: Familiarise yourself with the Consumer Credit Act and FCA guidelines

A thorough review can help avoid pitfalls and ensure a smooth rollout.

Alternative Financing Solutions

If customer finance isn’t the right fit, consider these alternatives:

• Layaway Plans: Customers pay in instalments before receiving goods

• Subscription Models: Regular payments for ongoing access to products or services

• In-house Payment Plans: Manage instalments directly, though this increases your risk

• Third-Party Payment Providers: PayPal Credit, Klarna, and others offer integrated finance solutions

Each option has its own implications for cash flow and customer experience.

Frequently Asked Questions

1. Do I need FCA authorisation to offer customer finance?
Not always. Many brokers allow you to offer finance under their permissions, though some products do require direct authorisation.

2. How quickly do I receive payment?
Most lenders pay the full amount (minus any fees) within a few days of finance approval.

3. Are there setup costs?
Some brokers charge an initial setup fee, while others work on a commission-only basis.

4. What happens if a customer defaults?
The finance provider usually bears the risk, not your business, provided you have met your obligations.

5. Can customer finance improve my cash flow?
Yes. You receive payment upfront, while customers pay over time.

6. Is customer finance suitable for small businesses?
It can be, especially for those with growing sales and larger average order values.

Next Steps: Implementing Customer Finance

If you’re considering customer finance, start by assessing customer demand and identifying suitable finance partners. Consult with a broker like Kandoo to understand eligibility, compliance, and the range of products available. Train your team, update your website, and communicate your new finance options clearly to customers. With careful planning, customer finance can become a cornerstone of your growth strategy.

Disclaimer

This article provides general information about customer finance and does not constitute financial advice. Businesses should consult qualified professionals and ensure compliance with relevant regulations before offering finance products to customers.