How to Offer Financing to Customers: A Guide for Service Businesses

What is customer financing?

Customer financing (or consumer financing) is when a customer is given a loan to pay for a product or service. The service provider receives the total amount for the product or service immediately, while the customer pays it back over time through monthly payments. 

Customer financing can either be offered by a third-party lender, like a bank, or by a service business owner, and it typically includes additional interest charges on top of the original loan amount. 

For example, if a customer had a $1500 HVAC job done, they could be given the option to make five payments of $300 plus interest to cover the balance of the loan. 

Interest rates usually range from 0-35.9% based on a variety of factors including the loan amount, the repayment plan, and the customer’s credit score.

Why should I offer customer financing?

Consumer financing opens up your business to a whole new subset of potential customers. Some clients don’t have the cash to pay for a large job upfront. Others need emergency repairs done but don’t have the funds to cover the work. 

Financing gives these customers an affordable option to move forward with a contract. Plus, it helps your business to: 

• Look more professional
• Gain a competitive edge
• Remove a buying barrier that prevents clients from accepting quotes
• Win more jobs and sign bigger contracts
• Increase sales by up to 20%

What are the most common customer financing options?

There are two ways to offer financing to customers. You can either fund loans yourself or through a third-party financing provider.

1. In-house consumer financing

If you fund customer loans yourself, it’s called in-house financing. Using this method, you’ll need to do your due diligence to ensure the customer can be relied on to pay you back. This means running credit checks, structuring repayment plans, setting an interest rate, and providing funds to cover the job expenses like materials and wages. 

In-house financing is more popular in large businesses, like car dealerships, since they have the staff and resources to manage financing programs. 

Of the two options, it’s also the most risky because you need to be aware of the legal regulations for handling your customers’ credit information. And, if the customer stops paying, it’ll be up to you to send out overdue payment reminders and collect on the debt.

2. Third-party financing

Using a consumer financing partner is a better choice for many service businesses since the legal responsibilities related to the loan fall on the lender. It’s up to them to complete credit checks, set interest rates, collect payments, and protect the customer’s credit information. 

With this option, the lender pays you in full as soon as a job’s done. Then, it’s up to the customer to repay the lender as per the repayment terms they agreed to. If the customer misses a payment or stops paying altogether, it’s up to the lender to get in touch with the customer. 

This is often the best choice for service business owners since it doesn’t impact cash flow and you won’t have to waste time chasing down clients. However, depending on the lender, you’ll likely either have to pay a fee per transaction or a monthly fee to use the service. 

If you decide to go with a third-party lender, consider the best options for your clients. For example, some partners offer 0% financing for the first three months while others don’t charge customers late fees if they miss a payment. 

Better yet, choose a lender that works with your existing CRM software to make the application and acceptance process seamless. For example, Jobber offers consumer financing through Wisetack, making it easy for you to turn leads into customers with flexible payment options.

How does consumer financing work?

After choosing whether to move forward with consumer financing yourself or through a third-party lender, your financing process should look like this: 

Step 1: Tell your customers you offer financing

This information can be included in quotes and estimates, or directly on your website. But if a client expresses concerns with the cost of the project or their budget, it doesn’t hurt to bring it up to them personally, either. 

Most lenders also have a minimum loan amount, so be sure to only offer financing on jobs that meet your lender’s requirements. 

Using integrated financing through Jobber, customers can apply straight from their quote. 

Step 2: The customer applies for financing through your partner

Using a finance partner means you don’t have any of the responsibilities that come with lending money to clients. But it also means you won’t have a say in the approval process.

If a client decides to apply for financing through your lending partner, whether or not their application is approved or denied is out of your hands. 

Most lenders will start with a soft credit check to show customers what they qualify for. From there, customers can decide whether or not they want to move forward with an application, which will include a hard credit check. 

The lender will let the client know if their application has been accepted or not. 

Step 3: Start the job

If the client’s credit application is approved and they’ve agreed to any conditions or payment terms, you can get started with the job. 

Pro Tip: Make sure not to order any expensive materials until the approval process is finished. If the client’s application is denied, you don’t want to be stuck with supplies that are unique to their project or hard to resell. 

Step 4: You get paid in full while the lender gets paid back over time

Once the job’s complete, you get paid in full by the lender and the client begins making installments on their repayment plan. 

The customer will continue to make payments on the balance owed until it’s been paid in full.

Advantages and disadvantages of offering financing to customers

Consumer financing comes with pros and cons for businesses and their clients. While it can be a great option in a lot of cases, it’s not always a fit. That’s why it’s important to evaluate your options carefully and think through how they’ll impact your service business by reading through these pros and cons.

The pros of consumer financing

Consumer has a lot of benefits for service business owners. If you’re considering adding flexible financing options to your service business, you can expect to: 

1. Close more jobs. The biggest benefit of customer financing is that it removes barriers to sales. We reviewed price estimates with and without financing and found that offering financing typically increases sales by 20%. 
   
   Another study showed that 76% of U.S. consumers are more likely to make a purchase when a simple payment plan is offered. 
   
2. Increase the value of your jobs. It’s easier to sell higher-value jobs and packages when you offer financing options to your customers. Since they don’t have to come up with the entire amount out of pocket, it means they’re more comfortable with bigger spends. That increases your average deal price and provides a boost to your bottom line. 
   
3. Get paid upfront. You don’t have to worry about customers paying outstanding invoices when consumer financing means you get paid right away. Not only does this keep cash flow steady, but it also prevents you from wasting time chasing down late payments. 
   
4. Give your customers more freedom. Not having to worry about a strict budget means clients can focus on getting exactly what they want instead of only what they have the cash to cover.
   
5. Reduce your admin workload. When payments are handled for you, your schedule can be filled with jobs instead of administrative tasks. This gives you more time to grow your business by exploring things like lead generation platforms, referral programs, and upsells. 
   
6. Earn repeat business. Offering flexible payment options like financing shows customers you’re easy to work with and that you care about their business. This encourages them to return as repeat customers, boosting your chances of getting referrals and positive reviews. 
   
7. Improve customer experience. Customer experience plays a big role in the success of your service business. When you accommodate your customers’ needs by offering flexible payment options, it shows that you care about making them happy. 
   
8. Gain a competitive edge. If you offer customer financing and your competitor doesn’t, you automatically look like a better option for clients who don’t have the cash to cover expensive jobs upfront.

Disadvantages of consumer financing

Although customer financing is a good option for a lot of service businesses, it’s important to consider its cons, including: 

1. Service fees. If you choose to go with a third-party lender, it won’t be free. You’ll have to pay either monthly or per transaction to use the service. These fees vary between lenders, but typical land between 3-6% per transaction or around $50 per month. 
   
   On the other hand, your customers may also have to pay interest fees, late payment fees, or early repayment fees on top of the balance. 
   
   Reviewing the payment terms for both you and your clients is essential in choosing the right lender. 
   
2. Minimum transaction amounts. Most lenders have a minimum amount they’re willing to lend. And since financing is meant for big-ticket items, your customers may not be able to finance lower-cost jobs. 
   
3. Customer acquisition cost. The amount you spend to finance a customer’s job increases the overall cost of acquiring a new customer—that’s your customer acquisition cost or CAC. 
   
   The more it costs for you to bring in a new customer, the less you make from the job. A cost-benefit analysis will show you whether you’ll be able to recoup the additional costs of offering financing to your customers.

How do you know if customer financing is right for your business?

While customer financing can work for just about any service business in any industry, whether it’s right for you depends on your growth goals and if you’re ready to scale. 

It’s important to ask yourself the following questions before jumping in: 

• Have I done a cost-benefit analysis, and do the numbers make sense?
• Do I offer services that are easy to upsell to cover costs?
• Do my jobs average $500-1500 each?
• Do I have a high-quality and trustworthy lender to work with?
• Is adding flexible payment options to customers one of my growth goals?

If you answered yes, then moving forward with customer financing may be a great way for you to scale your service business. Just be sure to do it safely by choosing an experienced lender that offers reasonable terms to you and your clients.

Originally published in December 2021. Last updated on September 6, 2024.