How Does Customer Financing With Square Installments Work?
Square is best known by online sellers and brick-and-mortar shops for its secure credit card processing solutions. With a free mobile point of sale app — and free credit card reader– Square has made it easier for the everyday small business owner to start taking credit cards. Card readers like Square’s also make it more convenient for shoppers to buy without carrying cash. That can be a win-win for everyone involved with the sale.
Because a business owner no longer has to purchase an expensive POS system to process credit card payments, it’s no wonder that the use of Square has rapidly grown over the last few years. In fact, a surprising number of businesses still did not accept credit cards at the time Square was launched. For a solo entrepreneur or a smaller shop, it used to be a lot more expensive and time-consuming to get started (not to mention more than a little intimidating, given PCI compliance and other regulations). Nowadays, you can find these portable credit card readers everywhere — from your favorite ice cream place to high-end boutiques, salons, and even consulting agencies. If you’re buying at a local shop, there is a good chance that Square is the company processing your payment.
In typical Square fashion, Square Installments provides a more accessible option for businesses that want to offer financing to their clients. If your company sells higher ticket items — from $250 to $10,000 — and you’d like to offer on-the-spot approval and financing to your customers, read on to find out more about Square Installments. But first — a little primer on customer financing.
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What Is Customer Financing?
Before we dig too deep into Square Installments, let’s cover the basics of customer financing. By financing a purchase, customers can take home a product or use a service right away without paying for it in full at the time of purchase.
A common example of customer financing would be heading to the dealership and leaving with a new-to-you car — and a payment plan for the next three years to pay it off. Getting the newest version of your phone and rolling payments into your mobile phone bill is also another (more painless) way to finance an upgrade for your phone with less sticker shock.
Financing makes things a little easier on your customer, but it shouldn’t require you to wait for the cash. When you offer to finance through a third-party like Square Installments, you sell your product or service and permit payment to be settled directly between the lender (in this case Square Capital) and your customer. Square pays you in full at the time of purchase.
Financing customers is all about convenience and accessibility. For your customers, financing can make large ticket items easier to purchase with predictable monthly payments spread out over time. Instead of shelling out the entire lump sum, they have more time to pay. This makes for an easier sell for your salesperson and a more comfortable decision for your customer.
When a purchaser thinks about what they are buying in terms of monthly vs. the total amount of dollars, financing can significantly lower the “sticker shock.” Giving purchasing flexibility to your customers will make buying from you a more attractive and accessible option — and of course, that’s good for your business, too.
Companies that invoice monthly payments for ongoing services are also offering a financing option to their clients, in a way. Yet anyone who has a business model based on retainers or monthly agreements knows that sometimes when the bill comes due, it doesn’t always get paid — possibly because the person you invoiced has bad credit or is in financial trouble. These issues can be virtually nonexistent when you let Square Installments pre-screen and approve your clients — and take on the financial risk.
Read on to find out how Square Installments works and how much it costs so you can decide if Square Installments services are right for you.
How Does Square Installments Work?
There are two ways you can use Square Installments for your business: at the point of sale or via Square Invoices. Once you sign up for Square Installments, your business will get a custom URL. This web address is just for your business and is the link you’ll send to every customer who wants to apply for financing.
The Square Installments Process For In-Store Sales
Once you share the link with your customer, they’ll follow the instructions from their smartphone and fill out a short online application. In almost all scenarios, customer approval happens in real time, right when they’re ready to purchase at your shop.
If approved, they can accept one of the financing options and will receive a one-time-use number for a digital card they use to pay you for their purchase. The number is valid for seven days, and your customer can only redeem it at your business.
When your customer is ready to buy, they’ll present you with the digital card number given to them by Square Installments; you will key that number directly into your Square Point of Sale app, online through Square API, or through your virtual terminal.
Square pays you in full for the amount at the time you process the approved application.
Square Invoices From Square Installments
Square Invoices allows you to send your customers invoices through Square as well. After you are approved and set up, the option for installment payments will appear on your invoice automatically. Once your customers receive your invoice, the process is similar to the one above — they fill out an online application, can pick a plan, and once approved, you get paid upfront and in full.
To spread the word, Square will also send you some free marketing material — both in print and in the form of a banner for your website so your customers won’t miss this new option for buying with you.
You Don’t Need To Be A Financing Expert
Worried about the fine print and fielding financing questions? Don’t be. If your customers have questions about Square Installments, they’ll contact Square directly. In fact, because this is considered a “highly regulated financial product,” it’s essential to pass any questions or concerns off to Square’s own customer service folks. And of course, this arrangement means you’re not burdened with the nitty-gritty details of financing or payment collection.
How Much Does Square Installments Cost?
If you’re a business owner considering whether or not the cost is worth the convenience of the service, here are some figures to help you crunch the math.
Square Installments for Square Invoices costs 2.9% of the purchase price plus $0.30 per transaction. Square Installments at your Point of Sale costs 3.5% of the purchase price plus $0.15 per transaction. If a custom rate applies to your business for keyed-in Square Invoices transactions, this rate also applies to any Square Installments transactions.
The good news is that there are no recurring monthly usage fees or long-term commitments. You can cancel the service any you time want with no fees or contracts for your business to worry about.
For a customer who is considering using Square Installments to pay for a purchase, the annual percentage rate will vary depending on a few different factors. However, every customer will have three options when it comes to repaying the loan. Square makes things upfront and easy to understand for the borrower, with ease of use in mind.
Should You Use Square Installments?
The main benefit of Square Installments is that customers can pay over time — making them more likely to buy and making your business more likely to sell more inventory. Whether to break up payments for a big purchase that a customer normally couldn’t afford, or simply to offer a convenient option other than cash or checks, financing through Square Installments can be a valuable tool for your sales team to leverage.
When the average business owner thinks about customer financing, one of the biggest concerns is that the customer gets possession of the product or service without paying in full. While that may be a concern if you offer in-store financing and manage it yourself, in this case, Square takes on the financial risk entirely. You get paid right away and let Square manage the installments.
There are some important things to keep in mind when you consider whether Square Installments services are right for your business, however. As noted above, Square Installments isn’t free. Also, keep in mind that Square Installments is only applicable for purchases between $250 and $10,000 — so businesses that deal with higher ticket products or services will need to consider other options for financing.
When you make the final decision to use Square Installments, consider the benefits vs. the costs. Here are a few questions to ask:
- Would your target market and current customers likely make the purchase anyway? (In other words: How “warm” or “cold” are the people who come to your online sales page or place of business?)
- Does opening up financing options also open up the possibility of a new target customer or a larger final sale?
- If you send out invoices, will Square Installments give you a more convenient or secure option to take secure payments and prescreen users, despite the cost?
For any business owner, the benefits and conveniences should outweigh the cost of Square Installments per sale. Because you don’t need to sign any long-term contracts to use Square Installments, it might be worth it to try the service for a bit, see what you think, and compare sales over the next few sales cycles to be sure either way.
Learn More About Square
While you consider whether or not you want to jump in and offer Square Installments as an option for your customers, check out some of the other reviews for Square services. Find out how much Square charges for their primary services and get armed with more information about Square processing to see if these payment options are right for your business. If you want to see the service for yourself, sign up for a free Square account today and check it out!
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