As we discussed last week, in-house financing can be a powerful tool to help dentists and various other medical practices generate wealth and grow their business at a dramatic rate. The same tools have also been utilized to great effect in a variety of industries, and while the needs of the business may change, the benefit of extending your credit to customers through in-house financing remains constant.
Robert, a mattress retailer, enjoyed steady sales numbers during much of the calendar year, especially in the holiday months and home and garden trade-show season. However, business slowed down outside of those months, in some cases making it hard to cover his overhead costs. Furthermore, Robert found himself having to turn away business from customers who weren’t approved by his 3rd party financier, or would walk down the street to a competitor rather than wait a week for a financing decision.
To address these problems, Robert decided to drop his 3rd party financier, and instead started a conservative in-house financing program. He required at least half the sticker price of each mattress as a down payment, ensuring that all hard costs were covered right out of the gate and minimizing loss in the case of a default. After six months, Robert had 80 loans on the books, with monthly payments coming in to the tune of $15,000 – $20,000.
With that consistent cash flow coming in each month, Robert could breathe a little easier during the leaner season. On top of that, he kept the 8-15% he would have otherwise paid to a 3rd party. After his first six months, Robert began to get more aggressive with his business model, modifying his approach so that he could approve more loans.
With a comfortable cash flow already ensured, Robert began to relax his lending practices. He asked for less money down and found new avenues to approve loans, thus making it easier to say yes to customers who would otherwise walk down the street to a competitor. Simply put, without the restraints of 3rd party financier, Robert now had the power to do whatever was necessary to make a sale, while still managing his risk.
As Robert got more aggressive with his lending practices, he was able to dramatically expand his sales numbers, and comfortably cover his cash flow needs in the slower months with the ensuing monthly payments. While not all companies share the same cyclical sales concerns, the ability to extend-credit to customers on your own terms can benefit any business. Next week, we’ll take a look at a Certified Nursing Assistant training school that uses in-house financing to fill empty classroom seats and grow their