Don't miss out
Subscribe to QuickBooks for only
$1/month for 3 months
Don't miss out
Claim now
April Sale
Buy now and pay only $1/month
for your first 3 months
March into savings Don't miss out!
$1 /monthfor 3 months
Track your expenses as you go and save 11 hours of admin per week
QuickBooks Online $1 /monthfor 3 months
Start fresh this new year
with QuickBooks Online
$1 /monthfor 3 months
Sale ends soon. Don't miss out, sign up today
$1 /monthfor 3 months
Start fresh this new year
with QuickBooks Online
$1 /monthfor 3 months
for 3 months
for 12 months
When purchased in bundles of 10
50 %off for 3 months
50 %off for 12 months
  • Invoices
  • Expenses
  • Reports
Image Alt Text
Cash flow

How small businesses can offer customer financing

If you are a small business owner, the financial resources of your customers may ultimately factor into your company’s success. This is especially true if you offer higher-priced items or services. So how do you encourage people to check out and complete a sale  without reducing your prices and hurting your bottom line?

One potential solution is customer financing. Customer financing, also referred to as consumer financing, operates as a buy-now-pay-later method. You can provide financing in-house, or you might decide to rely on a third-party financing company. Customer financing can be a win-win situation for both consumers and business owners: Customers get the product they want, and you close sales on full-priced products and services.

As COVID-19 influences how customers shop, retailers with online stores and ecommerce companies may consider adopting a financing platform, which can enhance customer loyalty and increase sales.

Continue reading for a comprehensive explanation of consumer financing, to explore your consumer financing options, and to discover the benefits and drawbacks. Or, skip to the section that directly answers your query using the navigation links below.

What is customer financing?

Customer financing is a program or service offered by a business to help consumers pay for products, goods, or services over time. Usually, financing involves an application process where the customer’s overall credit risk is assessed with a credit check.

Types of customer financing

Primary financing refers to financing where a business acts as a lender and offers its own financing program to customers. Primary financing is typically a more involved process for the business than third-party financing.

Third-party financing refers to a type of financing where small business owners rely on a third-party financing provider to act as a lender at the point of sale. In most of these programs, the customer enters into a payment plan to pay off a purchase’s full amount over time, often through monthly payments.

Third-party financing companies allow a wide range of credit to be approved compared to other, more strict forms of financing. In some cases, these financing programs are interest-free, while others might assess interest charges at set interest rates.

How to offer financing to customers

Following these steps to offer financing to your customers:

  1. Review your customer financing options and decide which to offer
  2. Let your customers know about their financing options
  3. Accept and review customer financing applications: If you’re offering in-house financing, you will need to use an evaluation process to determine a customer’s creditworthiness. If you’ve decided to work with a third-party consumer financing company, the company will take care of approving or rejecting consumers.
  4. Complete the sale
  5. Collect customer payments according to the payment plan agreement

Consumer financing options for small businesses

In-house loans

If you’re a business that sells higher-priced goods or services, in-house financing may be a good fit for your business. A few examples of products and services customers may want to finance include furniture, appliances, electronics, or home improvements and repairs.

For in-house loans, you will need to pay costs associated with credit checks and collecting payments, which require both software and staffing, as mentioned above. You’ll also need to develop a credit policy for your business, and decide your terms for accepting partial payments from customers.

QuickBooks Online accounting software can simplify the payment process with automated invoices and payment reminders. Using QuickBooks Payments, you can send customers pay-enabled online invoices and your books are automatically reconciled. With your payments and accounting all in one place, you’ll have more time to focus on your business.

Grow Your Business with QuickBooks

Third-party consumer financing

Third-party consumer financing has recently grown increasingly popular among businesses of all types, particularly online retailers. Popular online third-party financing providers include:

  • Payflex
  • PayJustNow

These third-party financers allow customers to apply partial payments toward the cost of the purchased items, and typically offer customers interest-free payment terms. Installment payments are often due on a biweekly or monthly basis.

Using third-party consumer financing, you’ll pay a fee for each transaction processed for financing or pay a flat monthly fee. The benefit of using a third-party financing company is they do much of the labor on your behalf, so you don’t have to worry about completing credit checks or obtaining payments.


Layby is a payment plan where a business reserves a product for a customer until the customer pays for the item, typically with a series of partial payments. In contrast to other financing options, under a layby agreement the customer does not receive the item until it has been paid for in full.

Under a layby agreement, if the customer does not complete payments for the item it will be returned to stock. The customer’s money may be returned in whole, minus a fee, or forfeited, depending on the terms of the agreement. Some businesses choose to charge a fee for holding the item until the customer has completed payment.

Layby decreased in popularity as credit cards gained ubiquity, but may still be an appealing option for some businesses and consumers. Typically, a layby agreement allows the customer to avoid interest charges, and the price of the item remains fixed. Layby agreements reduce risks for the seller, and can be offered to customers with poor credit.

Pros and cons of offering customer financing

Small business owners should evaluate both the benefits and drawbacks of offering consumer financing. We’ve summarized some of the pros and cons below.

Benefits of consumer financing

  • Increase order values: On average, order size increases by 15% when businesses offer customer financing. In turn, larger orders mean more revenue to boost your bottom line. Plus, the customer gets to buy exactly what they want instead of an option that may not be exactly what they need.
  • Decrease hassle: If you decide to work with a third-party financing provider, you don’t have to worry about managing accounts or nonpayment issues. Instead, you can focus on your company’s growth and rely on a more consistent cash flow.
  • Close more sales:  The initial upfront cost and sticker shock can be a serious obstacle to overcome when consumers are deciding whether to make a purchase. However, if you can break up the cost of a product or service over monthly payments, customers might be able to afford those smaller payments. “Buy now, pay later” is a great way to close more sales for both big-ticket items and large order sizes of less expensive items.

Drawbacks of customer financing

  • Fees and expenses: If you use a third-party financing provider, you will likely have to pay fees for it. In some cases you will need to pay a flat monthly fee, while other providers charge a percentage on each transaction. Offering in-house financing may require investments in both staffing and software resources.
  • Minimums: Some providers require a certain transaction amount before you can offer financing to customers during the checkout process.
  • Customer acquisition expenses: Although financing is a great way to get new customers, the amount you pay might not be worth it. You should assess the return on investment after a few months of using customer financing to ensure it’s a good decision for your company.

How much does customer financing cost?

The cost to incorporate customer financing into your business model depends on what financing service you decide on.

For in-house financing, you’ll pay costs related to performing credit checks and collecting customer payments. You’ll also need labor to process and complete those administrative tasks, which will factor into your costs.

For third-party financing, you’ll pay a fee to use those services. The fee might be in the form of a percentage of each transaction process or a flat fee you pay monthly.

Should you offer customer financing?

At the end of the day, it’s your decision as to whether you want to offer a financing program or financing options to your customers. Whether you decide on point-of-sale financing from companies like Payflex or PayJustNow, or you provide financing in-house, these financing solutions can mean more sales.

Related Articles