While most households may not use the term cash flow, they’re very aware of the philosophy behind the term since the majority of us are on a fixed budget (salary, hourly wages, or retirement income).
If you’re a B2C (Business to Consumer) organization and your product or service is outside of the scope of a necessary expense, then doing a promotional campaign, where financial savings plays a prominent role, is one of the 5 most common advertising techniques.
One of the first things that comes to mind is the idea of giving a discount. But if your product or service isn’t a necessary expense and if it’s relatively expensive, then offering credit is a better option.
Although this article focuses on B2C organizations, B2B (Business to Business) also can and do offer credit as a promotion or sometimes as an integral part of their business model.
One option is to have your own internal financing. The benefit is that you can set the terms and control all aspects of the offering. The downside is that you need to essentially have your own banking and collection team–either internally or through specialty organizations that work in these fields.
Another option is through the use of private label credit card companies.
Synchrony Financial (I’m not affiliated with them) and similar firms provide private label credit card services to organizations.
If you sell products within the areas that they service (typically products that can be used as collateral include musical instruments and jewelry), have a bricks-and-mortar facility, and pass their credit check then they’ll provide you with the option of signing up your clients for your private label credit card that’s issued through them.
Your organization decides the terms for your client within a range of allowable options. This can include a 24-month payback term, equal payments, with no interest if paid off in full during the payback term.
They pay you the full value of the purchase minus a processing fee in the range of 4% to 14%. The processing fee varies based on the overall terms and what type of products you sell.
Here’s what that could look like. Remember |
- Your organization receives the amount listed almost immediately from the credit card service.
- Your client must pay the full amount in equal monthly payments with no interest if they pay it off no later than the end of the term
- It’s the credit service that’s taking the risk of securing each payment from your client.
These are some of the highlights. As always, read and understand the entire contract before you sign anything.
Also, normal credit card chargebacks still apply.
For your clients and future clients, financing allows them to buy more expensive products or more of a particular product than they normally could afford if they had to make a single payment.
That’s an advantage for your clients as well as an advertising advantage for your organization.
If you use an outsourced program, there’s another benefit for your organization as well |
You get paid in full (net of fees) almost immediately and the human resources needed for banking and collecting becomes the outside organization’s responsibility.
There are three major issues to consider |
- If your organization considers offering credit and servicing it yourself (your organization is the “bank”), do you have the financial resources to offer credit and the team to service the credit?
- If you outsource any or all of this risk and work, are you comfortable with the firm that will now be responsible to talk with your clients about financial matters; particularly if there is a late payment or non-payment issue involved?
- Are all of these extra expenses financially worthwhile to your organization in order to help current and future clients purchase more of your products as an “advertising” expense?
Photography by Jan Antonin Kolar