Consumer financing programs allow dealers to sell more merchandise to more customers more often. With many Americans’ budgets already stretched thin, fewer consumers have the cash on hand to make larger purchases such as flooring. Many of them, however, are able to make reasonable monthly payments that fit nicely into their budgets. For example, a customer who has only $1,000 in savings—enough for a sofa, but not an entire living room—can easily agree to a $60 monthly payment. She gets instant satisfaction and the dealer quadruples his sale.

Retailers that provide good financing solutions find that customer satisfaction and loyalty increase. Consumers view financing asa way retailers can help them to more easily purchase what they want.

But when dealers look at consumer financing, there are two major factions: those who can’t live without offering financing and those who can’t imagine why they should. Most often, the former faction is comprised of the dealers whose businesses are generating profits and growth, while the latter is content to maintain the status quo. In some cases, they have preconceived notions about financing programs. But the truth is they help dealers close more sales, generate more profits and reach growth targets that may not be attained without financing.

Financial institutions have developed a myriad of customer financing programs. These service varying retailer and customer demographics and drive acquisition, greater ticket sales, retention and loyalty. The two primary types are private-label financing and the sales finance contract.

Private-label financing

Private-label financing programs give customers immediate purchasing power at your store and become a first option for many customers making future purchases. They are administered by a financial institution that issues a branded credit card (with your logo on it) along with an open credit line that can be used only at your locations.

The customer’s key question/objection of “how are we going to pay for it” is easily answered if they open their wallet and find your credit card with an available credit line. Clearly there is significant focus on fostering brand recognition and customer loyalty.

Private-label credit card programs require a significant initial setup investment that financial institutions may be tax refund, etc. willing to make only for larger-volume, multiple-location stores. The programs are paid for through discounts taken by the bank or financial institution.

Sales finance contract

This type of financing is usually a closed end, fixed payment contract between store and customer, outlining the terms of the purchase (invoice items, payments, finance charge, number of months, etc.). The contracts are not held by the retailer but are sold to a financial institution.

A standard contract is supplied to the retailer and terms set as part of the sales program. The contract specifics and the discount charged to the retailer by the financial institution are worked out in advance with store management. For example, if a retailer chooses a 14% rate for their contracts, they might pay a 6% discount, whereas if they choose to charge their customers 24%, they might pay nothing.

The financial institution is responsible for checking customer credit. Credit application forms to be completed by customers are supplied. Credit approval typically takes seconds to several minutes depending on the financial institution, technology used and the customer’s credit picture. Customer defaults are the responsibility of the finance company.

The advantage of any private-label credit card program or sales finance contract is that the credit line made available to your customers helps to drive future purchases to your store. An added benefit is that monthly billing statements can become a powerful advertising vehicle through the inclusion of statement messages and direct mail offers and inclusions.

Within the two classes of consumer finance programs are various types of specialty (or promotional) financing programs that are utilized as an added incentive to maximize your customer’s purchasing power. The most popular ones are:

Straight financing: This program amortizes the amount financed over a set period of time with the first payment typically 30 days (extended first payment can be 45 days) from the date of purchase. Finance charges commence on Day 1.

Same as cash: These programs allow the customer to make his/her purchase interest free over a period of time (typically three to 18 months). Regular payments are required during the Same As Cash (SAC) period and the account must be paid in full by the end of this period or interest charges will be charged from Day 1 of the contract. Same As Cash programs allow customers to make purchases early in anticipation of future earnings.

No payments: While interest accrues from the purchase date, no payment is required for a set period of time (typically three to 18 months). This feature helps your customer budget toward an expected upcoming bonus, tax refund, etc.

No payment/no interest: This specialty program allows for no payment and no interest for a set period of time (again, typically three to 18 months, however, there are some 24-month programs offered on a very limited basis). This provides the maximum purchasing power in the mind of the customer as they foresee and rely on positive changes in their financial situation over time and budget accordingly.