Buy-now, pay-later plans could lead to new business
“I run a painting business, not a bank.”
If you’ve ever considered offering your customers buy-now, pay-later (BNPL) options, you might have had such a thought. After all, there are inherent risks in the financing business, especially when finance is not among your core competencies. Failures can be costly.
On the other hand, research has shown that the national average home exterior repaint costs between $3,000 and $4,000 for a home of about 2,500 square feet, and an interior repaint of the same home runs between $7,500 and $10,000. Painting a home can be a major expense for your customers and prospects, and the barrier that often prevents them from investing in a repaint is the fact that when the job is done, the bill is due — all of it. How many prospects who decide they can’t afford that one-time drop might be persuaded to flip if a payment plan were available to minimize their pain point?
And is offering financing more attractive — to you — if you partner with a third-party financing provider?
Below you’ll find a list of considerations to help you determine if financing has the potential to grow your business. To be clear, we don’t advocate for any approach.
DIY Financing. Let’s say you choose to be the bank. In other words, you offer your customers a BNPL plan, assume all the risks, and reap all the rewards, without a third-party partner. The good news is it’s probable that offering payment terms — whether monthly payments over one year, three years, 0% interest, net due in 6 months, whatever terms you choose to make standard or customize to the needs of a customer — could result in a busier workload.
Just be sure to understand the impact such activity will have on your cash flow, which will be reduced initially since you’ve pushed out receivables. And remember that demand for inventory — paint, materials, tools — might be initially higher to deal with your heavier workload, and therefore require more cash on-hand. (Sherwin-Williams offers its PRO+ account holders a 0% interest credit account that could help ease cash flow concerns in such a situation.)
Hopefully, that’s a temporary tradeoff, as cash flow should eventually even out over time. Doing some simple financial projections based on the terms you offer can help you understand how to get over the initial cash flow challenges that are likely to occur by offering your own BNPL plans.
It can be rewarding, but it’s also complicated. While you might be rewarded with new business growth, running your own financing operations can be a tricky proposition. Be sure to be aware of legal matters that will determine everything from how much interest you can charge to means of collecting debt, which can be an unpleasant necessity in any financing agreement. These regulations vary by state, so it’s likely a good idea to consult a lawyer early in the process if you plan to offer financing.
Late pays, no pays. Speaking of debt, late pays and no-pays are an unfortunate reality in many service industries that offer financing. Collection agencies are available to help you collect such debt, but they come with a cost. And it’s advisable to give yourself as much of a cash-flow cushion as possible to minimize the potential negative impacts on your business by collection issues.
Additional staff can ease the burden. Putting a finance expert on your team can help ease your mind — and your workload — if offering finance is in your future, allowing you to focus on the operations side of your business. Whether it’s pulling credit reports, reviewing credit applications and paperwork, or simply having a person on-board who has the time to explain financing terms and options to customers, a full-time team member can help you through the challenges of offering financing.
BNPL services are soaring in popularity. Data trends indicate that while credit card services are losing ground in popularity—especially among the younger set—acceptance of custom BNPL services is soaring. Try a simple google search and you’ll find many companies that offer BNPL partnership and can take all the aforementioned hassle out of trying to provide financing yourself. The tradeoff, of course, is that third-party financing providers don’t work for free, whether it’s a fee they charge you for sending them a customer, or simply keeping the interest they collect. They all work differently. Be sure to fully understand the terms of any agreement you come to with a third-party financing provider and understand that they will be viewed as an extension of your business. In other words, any bad experience a customer might have with a finance provider that you have connected them with could result in bad reviews for you, fairly or not. So be sure to choose a partner carefully.