Why Flooring Retailers Should Offer Financing

At nearly every convention, buying group, association meeting, market or performance group gathering, retailers talk about how to improve their bottom line. The conversation usually centres on increasing sales or margins, reducing expenses or attracting more customers.

But while retailers are open to almost any idea that can generate additional profit, why don’t more of them consider financing at least some of their own sales?

Pros of In-house Payment Plans
Most retailers rely on outside finance companies to finance sales made in their stores. In doing so, they are handing over finance revenues and profits that could be staying with them.

While those outside finance companies are convenient, there are compelling reasons why retailers should do some of the financing themselves.

Competitive advantage. Flexible payment options and personalized financing plans help set you apart from competitors and create deeper relationships with customers. When customers feel supported in meeting their financial needs, they’re more likely to return, refer friends and family, and make repeat purchases.

Improved cash flow. Yes, there is an initial investment required to build receivables. But as payments begin flowing back monthly, complete with finance charges, you create a steady, reliable income stream that cushions seasonal sales dips. In other words, your cash flow becomes less dependent on the ups and downs of retail traffic.

Enhanced marketing. Credit retailers collect valuable demographic and financial data that can transform marketing. With in-house financing, you control the information. That means you can time offers strategically. For instance, when a customer is down to their last few payments, they’re more likely to be ready for another purchase. This kind of precision is the holy grail of retail marketing — reaching customers exactly when they’re prepared to buy.

Increased average ticket size. Many customers can’t pay for big purchases outright but are willing to spread payments over time. By offering that flexibility, you unlock larger sales opportunities.

Additional profit from sales. You don’t need to attract a single new customer; with in-house financing, you simply retain income that would otherwise go to a finance company. The interest you earn becomes a steady revenue stream, often far exceeding the costs of offering credit. Other profit sources like late charges or optional credit insurance can add to the total.

Potential Cons of Consumer Financing
Of course, financing your own sales isn’t without challenges. The two most common concerns are cash flow timing and defaults and delinquencies.

While there is a short-term increase in cash needed as you build receivables, this is best viewed like an inventory investment: You must purchase inventory before you can sell it and create profit. The same applies to financing; once payments start rolling in, cash flow should turn positive.

As for defaults, some are inevitable. But with effective risk management and modern receivables software, delinquencies can be minimized and absorbed. The revenue from interest typically more than offsets losses.
Many retailers who take the plunge find these challenges are outweighed by the profitability and control gained through in-house financing.

Streamline with the Right Software
Software and technology have made financing far simpler than it once was. What used to be manual and time-consuming can now be automated, efficient and customer-friendly.

Look for software that supports centralized credit approval; automated underwriting and fraud prevention; electronic signing; text and e-mail receipts, billing and collection notices; multiple payment methods, including text-to-pay links; automated debit and clearing house payments; automated reference verifications; automated skip tracing; and intelligent, automated collection processes.

The most effective solutions integrate financing directly into your retail software systems: point-of-sale, cashiering, sales management, inventory, marketing and distribution. A fully integrated platform ensures financing becomes a seamless part of your overall operation.

Ronny Bensimon is a partner and president at Infinity Advantage LLC, the company behind InfinityX, a retail and finance software platform. Ronny can be reached out 310-365-9600 or [email protected].