How to Boost your Customer Retention by Offering Financing
Vendors that offer financing allow their customer to make a purchase without paying the entire amount upfront. In the case of software purchases, this means turning expensive ERP or CRM software purchases into more manageable fixed monthly payments.
Vendors that provide financing are particularly attractive to businesses with limited operational budgets. Since they don’t have to make large lump-sum payments all at once, they are able to maintain more liquidity.
Foundational Basics of Having a Financing Partner
Vendors can partner with a finance company to provide financing to their customers. This allows the customer to pay for the software subscription over the life of the subscription up to 5 years. It’s a powerful financing option during times of economic slowdown when getting a bank loan can be extremely difficult for small and mid-sized businesses.
Instead of heading to the bank, a customer can borrow the required funds from the vendor’s financing partner – subject to certain commercial terms and conditions. The customer agrees to repay this loan for a fixed period of time, and at a fixed interest rate (as low as 0% in some instances with a vendor discount required), which is in stark contrast to traditional bank loans. This helps businesses finance investments that wouldn’t otherwise be possible, while maximizing sales for vendors.
The Nuts and Bolts of Vendor Financing
For businesses, vendor financing gives them access to funds quicker, and at more favorable terms, than traditional bank loans. This also helps vendors sell more, even during economic downturns. It’s particularly beneficial for vendors selling intangible assets like IT, which most banks are hesitant to approve loans for.
What surprises many business owners is that vendor financing is similar to borrowing a loan from a bank. It simply lacks the normal complexities involved in doing so. In some cases, it’s filling out a one-page financing application. This simplifies the borrowing process for small or mid-sized companies that may not qualify for a bank loan or might be avoiding it due to high interest rates.
- Vendor financing involves vendors advancing capital to their customers, solely for the purpose of purchasing hardware or software from them
- Vendor financing helps to facilitate long-term relationships between vendors and their customers
Also, customers can invest in multi-year subscriptions, which often comes with a cost benefit. The ability to do all of this with 0% funding can be a game-changer for both the customer and the vendor. (Zero percent financing requires a vendor discount to the financing company.)
In this type of arrangement, vendors solidify long-term relationships with their clients, which minimizes customer churn rate, a serious concern in the software industry. On the other hand, it helps small and mid-sized businesses to manage their limited resources more efficiently.
The Top 3 Benefits of Vendor Financing for Businesses
- Access to capital that they might not qualify for otherwise
- Turnaround times from application to funding are much quicker than with traditional bank loans
- Turn a large upfront software subscription payment into monthly payments; longer repayment terms make borrowing more affordable
The Top 3 Benefits of a Financing Partner for Vendors
- Better profitability due to shorter sales cycles, increased transaction sizes, and up to a 0% financing option (vendor discount required), which eliminates the need for customers to “shop around” for a lower interest rate
- Improves customer relationships
- An advantage over competitors who lack the ability to offer funding to their customers
Vendors that provide financing can accelerate sales and lower customer churn rate, allowing vendors to minimize the need for frequent customer acquisition. Also, it gives the vendor a competitive edge over others who do not offer such financing options that customers truly need during these times of financial adversities.
At Dimension Funding, we help businesses with up to $500,000 financing for software subscriptions, without all the hassle. Any financing above $500,000 would require minimal paperwork, which is executed electronically.
If you’re interested in exploring vendor financing options for your customers, contact us today to learn more!
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