This is the first in our series, “Establishing Best Practices for Extending Credit in Today’s Economy”.
Successful businesses in elective healthcare, dental care, and veterinary services use customer financing to maintain and grow their sales. Like accepting different forms of payment, such as credit cards, extending credit is becoming more popular as another method to help close a sale, while enabling customers to financially secure services they would otherwise not be able to afford.
Unfortunately, given the current tighter credit standards and the increase in consumers with FICO scores under 650, access to consumer financing has become significantly limited making the financing that is available more expensive for these businesses. For example, approval rates for traditional financing through credit cards or lending institutions have seen a significant double-digit decline causing many consumers to forego non-essential elective healthcare services and creating a significant revenue decline for elective healthcare providers.
The credit crisis has also impacted many other B2C industries, such as education, legal, home improvement, luxury goods & services, and others that suffer from the lack of effective third party financing.
DIY – extend your own credit
The choice for many businesses is between offering their own payment terms or doing nothing, forgoing the much-needed revenue and crossing their fingers that the economy will improve soon.
As a result, many businesses are now turning to extending credit via internally funded payment plans as a way to close the gap and create a “win-win” for their business and their customers.
Extending credit through payment plans is hardly a new concept. For many types of businesses this is an accepted and well-understood practice that has helped them grow their sales and maintain customer loyalty. And, importantly, steady cash flow.
Many businesses that are considering a program to extend credit through offering their own payment plans have little experience in setting it up. Others, that already offer credit through payment plans struggle with manual processes that are time consuming and error-prone. For both, we recommend establishing credit practices using a “best practices” approach.
Establish a purpose for extending credit
Credit terms enable customers to focus less on prices, enhance customer relations, and have the potential to generate new sales. But before jumping in, the question needs to be asked: “Is it necessary to extend credit to maintain or increase sales?” Answering this question helps to define the purpose for an effective credit program and can establish milestones for measuring the program’s success.
Extending credit is an effective way to close the financing gap and give you more control. This is especially true if approval rates have dropped or discount fees have increased from your existing third-party lender.
The same is true if your competition offers customer financing and you don’t. The availability of customer financing is an important buying criteria for many consumers, particularly for larger ticket services, and especially in today’s economic climate.
Assuming the answer is “yes” for your business, you need a plan for how to extend credit effectively and efficiently. “Getting organized to extend credit,” which is our next post in the blog series “Establishing Best Practices for Extending Credit in Today’s Economy” will help to get you on the path to success with extending credit to your customers.