Maybe you’ve heard the term “point of sale financing” but you’re unsure what it is. Point of sale financing is an option offered by some companies for consumers to finance high-priced items, directly from the point of sale. This eliminates the need for time-consuming lending processes and gets consumers to purchase those items you may have difficulty selling otherwise. If you’re considering offering POS financing, or trying it out as a consumer, keep reading to learn more about this new lending process.
A New Way to Lend
Layaway has been around for decades as an easy way for customers to get those high-priced items they couldn’t afford all at once. Introduced and popularized during the Great Depression of the 1930s, this method allowed consumers to put a hold on expensive items, making monthly payments until the item was paid in full. Only then could the customer take possession of the item.
This method saw a rather large reduction in its usage sometime in the 1980s when credit cards became the staple of short-term lending. With high interest rates and a level of convenience unknown to consumers, credit cards quickly took hold; making more money for lenders and allowing same-day purchases for consumers.
Point of sale lending is an instant financing offer that usually occurs just before a sale is completed. POS lending is essentially a combination of personal and credit card loans; with mid-range interest rates and flexible terms offered to the consumer. This allows consumers to purchase those high-priced favorites over time rather than all at once.
A Rising Trend
This trend is actually becoming quite popular among both businesses and consumers. Credit cards have incredibly high interest rates; sometimes even doubling the original cost of purchases, and personal loans can be difficult to acquire simply for personal purchases (unless you’ve got phenomenal credit).
Many businesses with a retail POS system are now turning to POS financing as a way to entice customers to spend more at their stores without spending too much more. Store credit cards are a good option, but customers tend to shy away from the high interest rates and inflexible terms (not to mention high late fees) of these financing options.
Not to mention, POS financing can approve customers instantly, so there’s no waiting for approval and funding. Your customers will be approved or declined on the spot, and gain access to their funds immediately. The financing will have a set repayment time, so you’ll know exactly when the item is supposed to be paid for. The customer’s interest rate will vary depending on their credit.
A Risk and an Advantage to Your Business
POS lending is both a risk and an advantage to your business. On the upside, you can potentially sell more of your high-priced inventory with quick and easy financing options; on the downside, there’s always a risk that your customer will default on the loan, causing you to lose money in the end.
POS financing is an option that’s available to just about any business, but you’ll need to work with a third party lender to make it happen. This means that the lender is also getting a piece of the sale, causing you to lose more money if you’re not careful. Try hiring a financial advisor if you’re struggling to figure out what financial options work best for you.
The best thing to do if you’re considering offering POS financing in your store is to shop around for lenders. Find a reliable lender with a good reputation for quality service that can offer a great lending experience for both you and your customers. Be sure there are no hidden fees or costs associated with the POS financing option you choose, as customers will not appreciate these types of hidden expenses.
Is It Right For You?
The most important question to ask yourself before you decide to offer POS financing is, “Is this right for my store?” POS lending isn’t something that every business can benefit from, and if you don’t offer any high-priced items, it’s pretty much unnecessary. POS lending simply makes it easier for customers to acquire funding for high-priced items they can’t pay for outright. If your business doesn’t sell any such items, you probably don’t need to offer any kind of financing options to your customers.
Another thing to consider is whether or not you can afford to offer items on installment loans. Sometimes, receiving money over time isn’t the best option, especially for small businesses that operate on a fixed monthly budget or income/expense ratio. Be sure to account for the cost of offering such financing to your customers. What does the lender want in return? What are the fees associated with offering such financing? Having all the details will help you make an informed decision that you’ll be confident with.
Whether or not POS financing is something you want to consider for your store is a personal decision, but you should take into account all of the items we’ve covered in this article before you make a decision. Decide if it’s necessary, and if you decide it is, be sure to shop around for a lender that offers the right terms and no hidden fees or costs to your customers. The point of POS lending is to make things easier for your customers, not more costly.