In-House Financing: Four Risks and How to Avoid Them

These days consumers can finance just about anything, from a shirt that costs less than $50 at their favorite e-commerce site to a smartphone that costs several hundreds of dollars. When it comes to purchasing heavy equipment that costs many times a smartphone, customers want the same flexibility to make smaller monthly payments over a period of time. As a dealer, you can give them this option – and increase your sales – when you offer in-house financing. 

Let’s look at the four ways partnering with the right small business lender is key to reducing your risk. 

Risk #1: Reputational risk of a referral

One of the most common concerns dealers have about offering in-house financing is the reputational risk of a referral. If customers have a bad experience with a financing partner referred to them by the dealer, the entire sale is tarnished, and you risk losing a customer for life. Worse still, a bad customer review on Google or social media could impact additional sales. Reputational risk is a legitimate concern that highlights the importance of choosing a customer-centric financing partner.

A financing partner that puts the customer first offers the following:  

• Single point-of-contact – Customers are assigned a dedicated account manager who helps them through the entire financing process.

• Flexible and responsive support – Customers have the option of contacting support by the means most convenient to them, be it text, email, chat, or phone.

• No sales commissions – The financing partner is focused on making you and your customer happy, not on increasing their paycheck.

Risk #2: Risk of nonpayment

There’s a lot of work involved with running a business. The last thing you need is the burden of collecting monthly payments and working with collections if a customer defaults on a loan. That’s the beauty of working with a lending partner to offer inhouse financing. When a customer finances a purchase, you get paid in full, and the lender takes on the responsibility of collecting payments. You get paid 100% upfront, so you have no recourse.

Risk #3: Risk of losing money

If you don’t have any overhead, you don’t risk losing money. So, to further reduce your risk, find a lending partner that doesn’t cost you anything. Look for the following hidden costs that could eat into your profits:

• Any sort of partnership or loan origination fees

• Long-term contracts

• Minimum sales quotas

• Hardware or software requirements to integrate the lender’s application
  

Risk #4: Regulatory and security risks

Consumers are well aware of the risk posed by a data breach – financial fraud, identity theft, and significant time lost in cleaning up the mess. When you accept digital payments, you are liable for your customer’s data, and you are responsible for complying with regulatory requirements that dictate how that data is handled. You must have the resources to securely process transactions and demonstrate your ability to do so during an audit. This is both costly and time consuming, with no direct business benefit to you.

You can avoid cybersecurity and regulatory risks by working with a financing partner who accepts these risks on your behalf. A smart lending partner leverages modern technology to keep data protected and significantly reduce your liability. Ask potential providers what they are doing to secure your customer’s data.

Offering in-house financing can help you increase your sales per customer and close more deals. If you choose the right partner, there’s no risk to you. What do you have to lose? Learn about partnering with Triton Capital for in-house financing.