How to offer retail finance to customers

The case for offering finance now

Retail finance can lift conversion, average order value, and loyalty in a market where growth is uneven. UK retail sales volumes edged up in March 2025, marking a third monthly rise, yet remain slightly below pre-pandemic levels. The headline is progress, but the texture matters - food retail lags while some discretionary categories show life. In this patchy environment, finance is not a blunt instrument. It is a targeted lever that needs to match category dynamics, risk, and customer intent.

At the same time, the consumer credit market is projected to expand around 7% in 2025. With inflation easing and potential Bank Rate cuts, appetite for responsibly structured borrowing should improve. But households are still cautious, saving over a tenth of income and thinking twice before committing. That caution does not kill demand - it raises the bar for clarity, fairness, and flexibility. Retailers who explain costs plainly, verify affordability, and offer choice will win.

The business backdrop is not trivial. Around 50,000 UK companies are in critical financial stress, with retail among the hardest hit. That elevates the importance of robust credit policies, partner diligence, and protections like credit insurance. It also sharpens focus on cash flow - settlements from finance providers, subsidy costs on low or zero percent offers, and default risk management.

Digitalisation is reshaping expectations. Customers want fast, mobile-first journeys, instant decisions, and transparent terms. AI-powered recommenders now tailor offers to baskets, budgets, and credit profiles, lifting conversion without pushing unsuitable debt. Brand loyalty is more fragile than ever, so the experience around finance - from on-site messaging to post-purchase servicing - can be the difference between a one-off basket and a repeat customer.

Understanding APR is not just percentages - it is what you will pay in pounds and pence.

Bottom line: the opportunity is real, but so is the scrutiny. With clearer rules, stronger affordability checks, and the need for consumer education, retailers must align commercial goals with good outcomes. As a UK-based retail finance broker, Kandoo helps retailers structure offers that sell while staying compliant and customer-centric.

Who should consider this approach

If you sell mid to high-ticket items where price is a natural barrier - think furniture, home improvement, e-bikes, consumer tech, dental or optical services - finance can smooth demand. It is also valuable where replacement cycles are long and customers weigh options heavily. Multi-channel retailers gain the most by integrating finance from discovery to checkout, not just at the till. Smaller merchants can benefit too, provided settlement timelines and subsidy costs fit their cash flow. If your audience is price sensitive, digitally savvy, and researching extensively, offering transparent, flexible finance can turn browsers into buyers without resorting to heavy discounting.

The essentials, explained simply

• APR - The annual cost of borrowing including interest and fees. Compare like-for-like to judge value and ensure promotional APRs roll to fair standard rates.

• Representative example - A standardised illustration showing cost at a stated APR for most customers. Required for advertising and key to setting expectations.

• Interest-free credit - 0% APR for a set term, usually subsidised by the retailer. Effective for conversion but watch subsidy impact on margin.

• BNPL vs regulated credit - Some BNPL is exempt short-term credit, but many plans fall under FCA rules. Know which regime applies and disclose clearly.

• Affordability - Assessment that a customer can repay without undue hardship. Strong processes protect customers and reduce bad debt.

• Soft vs hard search - Soft checks estimate eligibility without affecting credit files. Hard checks are recorded and used at approval.

• Credit insurance - Trade credit cover that protects against late payment or insolvency when you extend terms to business customers.

• Cooling-off and forbearance - Customers may have rights to withdraw within a period and to receive help if they face difficulty. Build these into your journeys.

Your financing menu

1. Interest-free instalments - 3 to 24 months, 0% APR funded partly by retailer subsidy. Best for conversion in competitive categories with healthy margins.

2. Low-rate classic credit - 9.9% to 19.9% APR over 12 to 60 months. Lower subsidy burden, spreads cost for higher-ticket items and services.

3. Deferred and split payment plans - Pay nothing for a set period, then equal instalments. Clear, simple framing suits cautious households saving more.

4. BNPL with short terms - 30 to 90 days or 4-pay schedules. Works for baskets under £1,000 if disclosures are crystal clear and collections are fair.

5. Secured point-of-sale loans - Larger home improvement projects with asset-backed lending. Strong affordability checks and staged payouts help manage risk.

6. Business customer terms - Trade credit and invoice finance for B2B segments. Pair with credit insurance to mitigate late payments and defaults.

What it means for money and risk

Who qualifies and on what basis

Eligibility depends on product, provider, and your risk appetite. Lenders will review credit history, income stability, and existing commitments, typically starting with a soft check at pre-qualification before a hard check at approval. Expect stronger affordability testing for longer terms and higher amounts, particularly as households remain cautious and regulators prioritise good outcomes. For BNPL-style offers, clear disclosures and proportionate checks are essential to avoid harm. For B2B trade credit, assess the buyer’s financial strength, sector exposure, and payment behaviour, then consider credit insurance where distress risk is elevated. From a retailer standpoint, ensure your business has stable trading history, clean complaints records, and digital journeys that capture consent, present representative examples, and provide accessible support for vulnerable customers.

From browse to buy - the journey

1. Map categories and margins to suitable finance products.

2. Select FCA-regulated partners with strong underwriting.

3. Configure terms, APRs, and any 0% subsidy budgets.

4. Integrate digital journeys with soft-check prequalification.

5. Publish clear, compliant on-site and in-store disclosures.

6. Train teams for affordability, vulnerability, and forbearance.

7. Monitor approvals, arrears, NPS, and ROI weekly.

Upsides and trade-offs at a glance

Pitfalls to avoid

Do not treat finance as a last-minute upsell. Build it into discovery, comparison, and checkout so customers can assess affordability early. Be meticulous with representative examples and APR clarity across ads, product pages, and till-points. Stress test subsidy budgets against promotion calendars to avoid surprise margin hits. Implement fair collections and forbearance policies aligned to FCA expectations, with extra care for vulnerable customers. Finally, track social media sentiment and reviews to catch friction points quickly and iterate your offers.

If not this, then what

1. Price-led promotions - Short-term lifts but can train customers to wait for discounts.

2. Subscriptions or service plans - Spread costs with bundled value and retention hooks.

3. Lay-by style reservations - Customer pays over time before receiving goods, reducing credit risk.

4. Leasing or hire options - Useful for tech and mobility with upgrade paths.

5. Savings-linked incentives - Reward customers who part-pay upfront from savings with small discounts.

Quick answers to common questions

Q: Will offering finance hurt my margins? A: It depends on structure. Zero percent offers require subsidy, so set rules by category margin and season. Low-rate credit often has little or no subsidy.

Q: How do I stay compliant? A: Use FCA-regulated partners, provide representative examples, avoid misleading promotions, and implement robust affordability checks and fair treatment policies.

Q: Does finance increase returns risk? A: It can complicate refunds. Integrate systems so cancellations adjust balances automatically and keep customers informed about timelines.

Q: What approval rates should I expect? A: Varies by category, ticket size, and underwriting. With soft-check prequalification and clear criteria, 60%-80% is common for mainstream retail profiles.

Q: How is the market outlook for 2025? A: Retail growth is mixed, but consumer credit is expanding and inflation has eased. Customers are cautious, so clarity and flexibility are decisive advantages.

Q: Should I use credit insurance? A: For B2B trade credit it is prudent, given rising financial stress. It helps protect cash flow from late payment or insolvency.

Where to focus next

Start with a pilot in one or two categories. Align finance terms to margin and demand elasticity, then integrate prequalification and transparent examples across your site and store. Train teams, monitor approvals and arrears weekly, and use AI-driven recommendations and social listening to refine offers. If you need a structured partner selection, Kandoo can help scope, test, and scale.

Important information

This guide is for general information and is not financial advice. Always assess your own circumstances, legal obligations, and risk tolerance, and consult regulated providers before implementing any retail finance programme.