How to offer finance to your customers
UK research shows* that your average sale value will increase when you offer finance to your customers.
From a trade perspective, this means they’re more likely to take you up on those estimated extras. It also means more cash in your pocket.
UK research has also shown 80% of customers say that finance heavily influenced their decision to buy. ~50% admitted to spending more when finance was available. When home improvement work costs over £1,000, 60% of homeowners cannot afford the upfront cost.
Independent tradespeople burn time quoting for large home improvement projects but lose out to big firms who can offer finance.
Companies that offer finance are better able to keep up with the competition in their field. Companies that can offer finance to their customers without bearing the risk themselves are likely to come out in front!
Your average sale value will increase when your customers are able to spread the cost of large projects over time. The time period comfortable for one customer might not be ideal for your next, so your customer finance offering must be flexible. Your ideal customer financing tool must be flexible enough to allow each customer to stretch their budgets so they can buy exactly what they want.
Legal considerations when you offer finance
If your company begins to offer finance options, you might be obliged to gain authorisation from the Financial Conduct Authority (FCA). This is true even if you’re introducing your clients to a third party for financing.
When do you NEED FCA authorisation?
Offering credit is often left to the big nationwide or regional construction companies. They can offer financing in-house via a good compliance provider and access to a quality lending partner.
If you want to do what the big companies do, and you’re willing to do the necessary paperwork, then start by viewing the FCA’s guidance on consumer credit applications.
When do you NOT need FCA approval?
Accepting credit cards (a basic form of customer financing)
Many tradespeople will accept credit cards, and this does not require FCA authorisation. Accepting credit cards is an easy way to allow your customers to buy your services using consumer credit. They can therefore spread the cost of their home improvement project.
Accept payment by instalments (only big companies can afford to do this)
If you let your customers pay for goods in 12 or fewer instalments, without interest, within 12 months of agreed sale, then you do NOT need FCA approval. That being said, this is not an option for smaller firms or sole traders, as you bear the risk. Why would you want to be chasing payment for work you’ve already done, months after the work is finished?
Operating business to business loans to limited companies
This is not one to be taken lightly, however. Contact us if you’d like more information here.
Using ‘click-through financing’ tools which tie in with your normal way of working.
It has become normal to use an app to create and send quotes directly via email to your customer. These quotes are often branded, and professional. With a click-through financing app, your quotes have an extra item included, which is ‘instant access to finance’.
The best known click-through financing app for tradespeople is currently Payaca. See below for how it works. Bear in mind that there is no fee to register with Payaca (sign up here).
- Customers receive your professional quote as usual
- Customers find the click-through finance link in your quote
- Customers apply online and get an instant decision from our trusted lenders (e.g. Zopa).
- Customers can receive cash same-day.
- You get paid in the normal way.
See the image below for how this works in practice.
With Payaca there’s no risk to your company as all finance agreements stay between your customer and the lender. It’s used by tradespeople all over the UK. Your customer can receive cash same-day and can pay you in the normal way.
Directly from your quote, created through a mobile app, your customers are connected with click-through finance for their home improvement projects at the best rates. You do not need FCA authorisation to use Payaca.
How does the cost of a click-through financing app compare?
Most competing companies charge businesses between 5-16% of the loan value. With click-through finance, there are zero-fees to the tradesperson as payaca make a small commission from the lender.
Despite this, your customers can access home improvement loans through payaca partners at the best rates from 2.9% (as of April 2019).
Using Payaca’s click-through financing app ensures that your customers have access to the best rates from the best lenders, effortlessly. It also ensures that you don’t lose out to big firms using bigger (and more expensive) customer financing options.
Think about it this way – Barclays Partner Finance and Hitachi Retail Finance are all programs to help businesses offer finance to their customers.
Banks and large financing companies are incentivised to offer only their own financing. This reduces the competitiveness of rates offered to customers. With Payaca, your customers get access to multiple options, so they can pick a home improvement loan with a fixed term, and affordable monthly repayments at the lowest available rates.
Other apps like Gas App UK charge higher loan fees of 9.9% APR to the customer, and 4% to the tradesperson (as of March 2019). With Payaca’s click-through financing, you don’t pay a thing.
In conclusion, how to offer financing to your customers in 2019
Payaca is free to set up, charges nothing to tradespeople, and our partners offer customers competitive rates from 2.9% APR.
Given all the options discussed above, don’t you think it’s time to stop losing out to companies offering finance? Start offering click-through finance direct from your quotes today.
*Research by Hitachi Capital Consumer Finance See https://www.hitachicapital.co.uk/retail-finance/