Financing

Offering financing services can increase your bottom line

Buying on credit is a way of life for the American consumer. Financially savvy customers need a convenient way of paying that meets their personal financial goals. This is especially true for consumers buying “high-ticket” items like water treatment systems. Yet some dealers in the water treatment industry do not use financing options effectively either because of the fees involved or because of the perceived notion that financing is not worth the “hassle.” This article will discuss how offering financing can actually generate prospects and income for your business.

Why Finance?

Many people would like to buy a water treatment system for their home but don’t have the disposable cash for such a purchase. They may have credit cards available, but the thought of using one for a large amount scares them. And they may be able to obtain a personal loan or a home equity loan from their bank, but the hassle of doing so seems overwhelming. So what happens? They decide not to buy, and you lose a sale.

Some dealers say they have no need for financing because their customers are prepared to pay with cash or a credit card. However, they may be prepared to do so simply because they have not been given other options. By incorporating financing options into your advertising and marketing programs, and by encouraging your sales force to offer financing at the start of a presentation, you may attract more of those “on-the-fence” customers who worry about the cost. Potential customers will know before you leave their home that the purchase will be affordable and that you will handle the details.

Financing can be confusing for buyers. If you ask your customers to obtain their own financing, you give them one more reason to walk away from the sale. This is where a convenient financing option, offered as part of a smooth, seamless sales presentation, can help you close the deal. Instead of focusing on the total cost of the system, you can shift your prospect’s attention to a low monthly payment option. You may even be able to sell them on a higher-end model that will perform better. Some estimates say that customers who buy on credit are willing to spend up to 25% more than those paying with cash. If you begin your presentation by taking the financial burden out of the equation, you can then focus on the features and benefits of your product and the quality of your service, rather than on overcoming financial objections.

What Will It Cost Me?

Offering financing to your customers can cost you money. So can taking a credit card or accepting a personal check that may not clear. If you look at financing as something that just takes money from your pocket, you will never use it to its fullest potential. When done properly, financing can increase sales volume and customer satisfaction, leading to greater profit for your business.

The fees (also called discounts) involved with offering financing depend largely on the types of programs you offer and the credit quality of your customers. The lending companies may offer straight financing where the customer repays the contract at a set interest rate, or they may offer promotional financing where the customer has a certain period to repay the contract without interest. Lenders will typically charge dealers higher fee for promotional financing, such as three or six months interest free versus straight financing.

Lenders may also charge a higher fee to finance customers who are considered “high-risk” based on credit history and other factors. Some lenders will only accept good credit risks while others may buy riskier deals and offset the chance of loss on those contracts by charging the dealer a higher financing fee. Some dealers don’t want to consider “sharing the risk” with a lender by paying a higher fee, so they refuse to use the financing. By doing so, they are losing a good opportunity to gain more customers and increase their bottom line.

Consider the example shown in Table 1. The first lender declines the riskier customers, while the second lender approves ten more with higher discounts. The second dealer, without increasing his fixed expenses, shows a significant increase in his bottom line and may be able to justify paying the higher fee to finance the customers.

What About The Lenders?

Choosing a lender to provide financing is an important decision in terms of your profitability. The discounts that a lender will charge are important, but so are approval percentages, turn-around time for funding, ease of use, and quality of customer service and support.

A dealer may be able to establish a relationship with a local finance company, bank or credit union, or with a national company that specializes in retail financing. Banks and credit unions can provide fast local service, but typically are interested in just the best customers. They often will pass on those with less than perfect credit, resulting in low overall approval rates.

A local finance company may be an option, but these companies are interested in financing only as a source of potential consumer loan or mortgage loan customers. If you are not providing the local branch with a “convertible” portfolio, they may restrict your business, and some shy away from in-home sales altogether.
Other lenders specialize just in retail financing. Because they rely solely on income from this financing, their fees may be slightly higher, but they typically offer options to finance the broadest range of risk and approve a higher percentage of applications.

Your decision to partner with a lender who understands your industry, who can provide a high level of approvals, and who will provide you with continued support, will go a long way toward increasing your bottom line.

Overview

Anyone who has worked in sales knows how hard it can be to close a deal. Customers are smart enough to “shop the competition” looking for the best product at the best price from a dealer they can trust. By actively advertising and offering financing options as part of the sales presentation, you are eliminating one worry for your customer. You can gain their confidence by taking the financial burden out of the sale, and you may attract additional customers who have postponed their decisions due to cost.

By partnering with a financing source you can trust, you can drive your business with more sales, bigger profits and greater customer satisfaction.

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Judi Anderson and Andrea Swiney are business development managers for Aqua Finance, Inc. Anderson can be reached at 800.234.3663, ext. 171, or by e-mail at judia@aquafinance.com. Swiney can be reached at 800.234.3663, ext. 225, or by e-mail at andreas@aquafinaince.com.

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