The Complete Guide To Customer Financing For Small Businesses

Customer financing lets shoppers buy now and pay later, helping you close sales that might otherwise be lost to price hesitation.

By offering installment payment options, you make larger purchases more accessible without sacrificing immediate revenue.

How Do Customer Financing Programs Work?

Customer financing is a buy now, pay later arrangement that lets customers pay part of the total upfront and the rest over time. These programs are typically business-to-customer (B2C) rather than business-to-business (B2B).

You can manage financing in-house or partner with a third-party provider that handles approvals, payments, and collections for you. Before deciding how to offer financing, compare the pros and cons of managing it yourself versus outsourcing it to a third-party provider.

In-House Customer Financing

With in-house financing, you take on both the financial risk and potential reward of letting customers pay over time. Before setting up a program, consider the following:

Third-Party Customer Financing

If managing in-house financing sounds overwhelming, you can partner with a third-party financing company. These providers handle credit approvals, collections, and legal compliance, removing much of the administrative burden.

Some companies charge no upfront fees, while others take a service fee or retain the interest and financing charges customers pay. In exchange, they assume most of the risk and responsibility.

Before signing with a provider, review the contract details, fees, and potential profit impact. If you sell low-margin products, ensure that financing costs don’t outweigh your gains.

Is Consumer Financing A Good Fit For Small Businesses?

Large companies often have entire departments dedicated to managing consumer financing. Small businesses typically don’t have the same resources. That’s where third-party financing providers come in — they make it possible to offer flexible payment options without adding to your team’s workload.

Partnering with a third-party company is an easy way to test customer financing and gain experience before deciding whether to manage a program in-house later.

Here’s a look at the main benefits and drawbacks of offering third-party customer financing.

Pros & Cons Of Offering Third-Party Customer Financing

How To Offer Customer Financing: Online VS Brick-and-Mortar

How you offer financing depends on whether you sell online, in-store, or both — and if you’re using in-house or third-party financing.

In-house programs can be promoted however you like, as long as customers have an easy way to apply. Third-party providers usually include built-in tools for promoting and managing financing offers.

How Much Does It Cost To Offer Customer Financing?

Customer financing can cost anywhere from nothing to about the same as a credit card processing fee. Many third-party providers don’t publish their rates, so you’ll need to contact the company directly for exact pricing.

Also consider how chargebacks and returns are handled, as policies vary by provider and can affect your bottom line.

Types Of Customer Financing Programs For Small Businesses

Third-party customer financing typically comes from one of three sources:

• Traditional financing companies: Process applications manually, with approvals taking a day or two.
• Fintech companies: Use soft credit checks and approve small, short-term loans, often within seconds.
• Hybrid companies: Combine both approaches, offering quick approvals for small loans and larger financing options when needed.

Most providers don’t share upfront details about fees or contract terms, so it’s best to compare several companies and contact them directly for pricing and requirements.

As fintech lending grows, these models are starting to resemble credit card processing, with approvals and repayments based on the borrower’s credit and debt load — something merchants may want to monitor as the industry evolves.

Should I Offer Third-Party Financing For My Customers?

Studies show that offering financing can lead to higher sales and order values. For most small businesses, partnering with a third-party financing company is the simplest way to offer payment plans without taking on the legal, cash flow, or collections risks yourself.

Questions To Ask Third-Party Companies

Before choosing a provider, clarify key details such as:

• Are there any fees for referring customers?
• Do I earn a commission or finder’s fee?
• How are returns, disputes, chargebacks, and defaults handled?
• Who manages customer service?
• When will I be funded, and when does a sale officially count?

Prepare additional questions in advance so you can fully understand each company’s process before signing on.

Alternatives To Customer Financing

If customer financing isn’t the right fit, consider other ways to fund growth, such as:

• Small business loans or lines of credit
• Invoice financing to free up cash from unpaid invoices
• Small business grants for nonrepayable funding

You can also focus on growth strategies like expanding your product line, updating your marketing, or adding new sales channels to reach more customers.