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Is Your Company Ready to Do Customer Financing?

Topics: Finance, Management

One of the most difficult parts of any business is keeping a stable cash flow, which helps maintain an efficient flow of products and services. Cash flow is one of the most challenging areas a small business owner works with.

 

Luckily, there are solutions for keeping your cash flow steady, and one of the best ways to know where you're financially going to be in a few months is to offer financing to your customers. Not only can offering financing increase your bottom line, it can help your financial projections become more accurate.

Not every business is ready to take that step. Offering financing not only takes capital, it takes a firm knowledge of common business financing laws and procedures. On top of that, you need to spend a good amount of time creating policies and procedures specific to your business, so you’re not trading your product for bad debt.

So how do you know if your business is at a point where they can offer financing? Let’s take a look at some areas involved when it comes to extending financing to your customers.

 

Why You Would Want to Finance Your Customers 

When a business extends a line of credit to customers, they are basically providing customers with alternative payment options. When a company decides to offer customer financing, unless they have an in-house lending solution, generally they must work with an outside banking entity. This is a win-win for all involved.

When financing is offered, customers get access to the products they want, when they want them. Your business can make more sales because financing makes it easier to close deals. You may even make some money off interest. 

For a lot of customers, they expect that some form of financing will be available. If your business doesn’t have it, they’ll move onto someone else who does.

 

Having Open Balances Can Actually Help You Out In Emergencies 

One of the best ways to get business financing for your business is invoice factoring. Invoice factoring is one of the easiest ways to get financed.

Invoice factoring allows a business to get paid in advance for their invoices, which can help keep a regular cash flow. You are essentially giving your invoices over to the company in exchange for capital. The invoice factoring company settles the invoice while keeping a small part for their services.


When a business knows their average order, this type of service can quickly fill in the accounts receivables’ gaps and allows a business to reconcile accounts payable with ease. The higher your business’ credit score, the better the interest rate will be on a lot of these kinds of financing products.

 

You Have To Know Your Customers

Of course, a credit check is required for any individual applying for a credit card or an auto loan. The same is true for any kind of business financing.  The reason for this is simple, you want to know you’re going to get paid back. Extending any kind of financing requires you and your accounting team to fully understand the financial health of their customer.

Consumer financing is one of the largest and most lucrative businesses, but those who succeed in this sector are skilled at lending to businesses that have the ability to pay back. There are a lot of great resources out there for business to determine risk when it comes to financing your customers, like credit management companies.   

A lot of these credit management companies will take the majority of the work out of it for you. They’ll run the credit report and they’ll set the terms. The good ones even integrate with finance platforms like Quickbooks, allowing you to see exactly what you’ll be paid and when.

Know your customer

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Offering Financing Is Always a Risk

When a customer applies for financing, there is a fair amount of risk that they’ll be turned down. An employee may have worked hard and long to sell them on a product, only to find out the customer was denied financing. Smart companies get around this by offering various levels of customer financing options, including those loan products with high-interest rates. 

Another major risk, and an obvious one, is you just might not get paid the full amount. Bad debt is a reality a lot of business have to deal with every day.

For a lender to extend financing options to a business, they expect to get paid back for any money or product lent out. If your business’s customers have a sketchy history of paying their bills, you’re going to start accruing bad debt, and you’re going to have a hard time keeping your cash flow steady and positive.

Again, there are services out there that will take the guess work out of it. A lot of them will even take the risk on themselves, paying you and taking that debt on. Just make sure you do your research and find the best platforms so you can focus on growing your business.

When you started your business, spending a lot of time worrying about cash flow and bad debt was not your idea of entrepreneurship. But if you set it up correctly, business financing can help your business achieve it’s goals, growing in ways you didn’t think possible. If you think your company is ready to take the next step and start offering financing, do your research, create a plan and start.

Net terms accounts receivable

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ABOUT APRUVE

Apruve enables large enterprises to automate long-tail credit and A/R so you can stop spending 80% of your time and resources on 20% of your revenue. We partner with each of our customers to solve their unique credit, payment, and accounts receivable challenges and build the right credit solutions for your markets, customers, and goals. 

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