Buying something now but paying for it later has always been a tantalizing concept. But the idea is gaining even more steam now thanks to current events; in a world economy virtually crippled by the COVID-19 pandemic, shoppers need to stretch their dollar further than ever before.
Traditionally, people turned to credit cards when they didn’t have the cash on hand to afford a purchase. Today’s consumer is increasingly wary of credit card debt, however, and interest in other avenues has grown. Not surprisingly, a bevy of buy now, pay later (BNPL) services have sprung into action to meet the need.
These financial tools, such as Affirm, Afterpay, Klarna, and Splitit, allow customers to buy something and then pay it off over the course of a few months. Though the economy has been hit hard, BNPL service providers have seen massive growth spurts over the past few months.Â Customers still need to make purchases, after all. They just don’t always have the available funds in their bank accounts.
This has turned into quite a boon for many small businesses, which are now able to entice customers into making purchases they might not otherwise have contemplated. In fact, many small businesses that have tapped into BNPL services are seeing exciting pockets of new revenue streams in what is otherwise an economy headed towards almost unprecedented recession.
So how do BNPL services fit into a COVID-stricken economy? Could your small business benefit from offering your customers such a service? Let’s take a look at a few key numbers that revolve around this upstart financial sector:
Buy Now, Pay Later Is A Booming Industry
â¤ BNPL services are seeing 200%-plus increases during COVID-19
With cash-strapped customers turning to payment deferment methods in order to make purchases during the pandemic, the BNPL sector has achieved record growth throughout 2020.
Per fashion trade journal WWD, Splitit saw record growth during Q2 of 2020. The company processed more than $65 million in merchant sales during that quarter, a number that represents a 176% growth quarter-over-quarter and 260% year-over-year.
Afterpay’s numbers from its latest investor report reflect a similar story. In June of last year, the company had 1.9 million active US customers. By June of this year, the Australian-based firm had boosted its US user base to 5.6 million, an increase of 219%.
Younger Consumers Are Keen On BNPL Services
â¤ 87% of consumers between the ages of 22 and 44 have expressed interest in BNPL
Because BNPL is such a new concept (for instance, Affirm — one of other older kids on the BNPL block — was only founded in 2012), it’s no surprise that it suits a younger crowd. What is surprising, however, is just how many younger people are open to tapping into payment plans in order to make purchases.
It’s almost ubiquitous: Data compiled by PYMNTS.com in a report on the BNPL industry showed that a whopping 87% of consumers between the ages of 22 and 44 have expressed interest in BNPL.
One potential reason for the acceptance for BNPL is because young people just don’t have credit cards — according to a 2016 survey by Bankrate, only 33% of those between the ages of 18 and 29 are toting plastic. With an increasing distaste toward credit cards shaping the current generation, your small business may be able to appeal to a new and younger audience by tapping into BNPL — potentially even creating loyal customers for life.
Related: Everything Merchants Need To Know About Using Affirm: What It Is, How It Works, Pricing, & More
BNPL Is All-Around Popular
â¤ 37.6% of consumers have used a BNPL service
As BNPL is becoming more well-known with consumers, it’s becoming a more popular choice at checkout. In fact, a recent survey conducted by The Ascent (a financial analysis branch of the investment advice site Motley Fool) found that over one-in-three respondents have already used a BNPL service to make a purchase.
That number is only going to keep growing. According to the same survey, 20.8% of consumers first used a BNPL service in 2020 compared to just 7.4% that had used one before 2015. Plus, COVID-19 may increase the demand for BNPL. Per a different poll run by The Ascent, 46% of Americans have had to take out a personal loan to make ends meet during the pandemic.
Big Purchases Are A Hit With BNPL
â¤ The average purchase through BNPL is $104
It’s not outrageous to speculate that customers use BNPL services for big purchases. After all, the purpose of BNPL is so that customers can buy items or services they might otherwise not be able to afford at the time of purchase. As such, it makes sense to assume that customers will dip into BNPL on purchases that put big numbers on the till.
This reasoning falls right in line with the data. In an interview with Al Jazeera, Afterpay co-founder Nick Molnar said that customers use his service for primarily high-money buys — the average purchase through Afterpay is over $100. With this in mind, your business may be able to flourish via BNPL services because moving big-ticket items will be easier.
BNPL can also potentially increase average sale amounts. For instance, a 2019 case study released by Klarna highlighted how fitness clothing retailer Gymshark noticed a 33% increase in customer basket size after it added a BNPL option at checkout.
Related: The Complete Guide To Customer Financing For Small Businesses
People Want To Avoid Credit Card Interest
â¤ 39.3% of consumers use BNPL because they don’t want to incur credit card interest
With credit card issuers charging exorbitant interest rates on card balances, it’s not surprising that people are looking at different options when they need to spread purchases over multiple months. For example, credit cards routinely feature interest rates at an average 24.4%Â for those with bad credit (according to the latest rates report by CreditCards.com). Meanwhile, many BNPL services, such as Afterpay or Splitit, feature no interest.
Dipping back into the above-mentioned survey by The Ascent, we find that the number one reason people use BNPL services is to avoid paying interest on credit cards. Using BNPL services to make big purchases is a close second — 38.3% of respondents said they opted into a BNPL service because the purchase wouldn’t otherwise fit their budget.
These numbers echo findings from Afterpay. According to survey results released by the BNPL service, 54% of Americans are scared about taking on too much credit card debt — something BNPL can help avoid.
BNPL Services Create Repeat Customers
â¤ 65% of BNPL users have made two purchases within six months of each other
Any business needs repeat customers. Customers who come back mean a more consistent revenue, and confirm that you offer products or services customers trust. BNPL services certainly cater to their own repeat customers.
In its latest biannual global fashion and trend report, Afterpay revealed that 65% of its user base made at least two purchases in the past six months. By implementing a BNPL option at checkout, your business may be able to draw from customers comfortable using such services.
Buy Now, Pay Later: The Bottom Line
BNPL is a side of the eCommerce space that’s only going to keep growing. For small businesses that sell online, there’s little downside to offering a BNPL option at checkout. Besides giving your customers a chance to protect their budgets, you may also be able to increase your revenue — something that is all-important in a COVID-19 world.
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There are many ways to build a successful business. Some business models involve selling lots of items each marked at a lower price, while others work by selling fewer things at a higher cost. With either path, the financial resources of your customers will come into play. You might soon realize that not everyone can afford the more expensive things you sell; similarly, not everyone has the resources or desire to buy a lot of small items in one purchase. Is there a way to solve this problem and increase your sales without cutting your prices?
Of course there is. In fact, there are many ways. One way is to advertise, so that a larger number of potential customers are brought to your door. Statistically, you should make more sales. Another way is to offer financing to your customers. Financing allows those who are wavering on a purchase because of the price to buy from you right away and then pay for the goods/services in installments in the future. This way, you don’t lose a sale to sticker shock. This is called customer financing or, sometimes, consumer financing.
Broadly speaking, you can provide customer financing yourself, or you can use a third-party financing specialist. As to how to do either, along with their pluses and minuses, read on to find out.
How Does Customer Financing Programs Work?
By customer financing, we mean any sort of buy-now-pay-later arrangement. Typically, the customer will have to pay a portion of the total cost before the goods/services are released. This sort of financing is usually a business-to-customer (B2C) arrangement instead of a business-to-business (B2B) arrangement.
If you want to offer customer financing, you can either provide that service in-house or you can work with a third party. We’ll discuss each option in more detail below.
In-House Customer Financing
By in-house financing, we mean that you, the merchant, take all the financial risk — and possibly reap all the financial rewards — when letting a customer walk away with your merchandise (or receive the benefit of your services) before you’ve collected in full. If you wish to consider this avenue, there are some items you might want to think through first.
If you wish to tackle in-house customer financing, you’ll need to consider your business’s finances first. Understand your cash flow and maybe do some financial projections.
Know that when you actually start to finance your customer’s purchases, you’ll have a period of reduced income because you’re not receiving the full payment for the goods or services you sell. At the same time, your customers might be making a greater number of purchases, so you would need to pay out to replenish your inventory. You’ll need to make sure that you have enough money to run the day-to-day operations of your business while you wait for the installment payments to come in and become a regular part of your cash flow.
If you are right and your customers start to buy more than before because they can now finance their purchases, then your cash flow should eventually increase after an initial dip.
When it comes to lending money and charging interest, both state and federal usury and debt collection laws may apply. If you fail to follow them, you might have to pay fines or be subject to other penalties.
When you provide financing to your customers, you might want to charge interest on the loan. If that is the case, be sure to check your state’s usury laws that govern, among other things, the highest interest rate you can charge. To complicate matters, if you sell online and a customer is in another state, you might be subject to that other state’s usury laws as well.
If your customer defaults on a loan, you might wish to collect that debt. Unfortunately, what you can and cannot do are also governed by federal and state laws. The laws typically restrict you on the amount you can collect per type of asset and how you are allowed to collect it. Again, the laws differ by state, so this can get fairly complicated fairly quickly. (Here’s an article from the consumer’s standpoint.)
If you wish to start an in-house consumer financing operation, be sure to talk to a lawyer specializing in this area first. They can help you design a set of best practices that are best suited for your type of business — and that stay within legal limits.
If you decide to start your own financing department, you’d probably have to hire new people. For instance, for every application, you might want to pull a credit report before deciding whether or not to lend. There would be additional paperwork and internal records to keep as the customer pays off the debt. If the customer fails to pay the debt, you would have to have someone to work on the failure to pay in some way, even if it’s just sending the account to a debt collection company.
Additional internal processes will have to be set up to smoothly move a customer through each step, from application to approval to installment invoicing. All this requires additional employee hours. So, whether you hire one person or ten people to handle the financing, you would have to consider these operational changes and expenses before making a final decision.
Lastly, not every customer will pay off their loan. We covered the legal aspects of debt collection above, but the more important aspect of bad debt is the financial impact on your business’s cash flow. Know how much bad debt your business can absorb without running into cash flow issues before you decide if you wish to move forward.
Third-Party Customer Financing
It’s always nice to be able to keep your hard-earned money, but now that we’ve gone through some of the major considerations for providing customer financing in-house, you might start to see the headaches that are involved as well.
Fortunately, there is an alternative. There are companies specifically set up to do customer financing or just debt collection (if you continue to wish to keep a portion of the work yourself). Some of these companies charge you nothing for sending a customer to them for financing, but others want a fee so that they charge you for sending a customer to them. They will also keep all the fees/interest the customer will pay to obtain financing. In return, they take care of all the legal and operational complications of customer financing for you.
If you continue to be interested in working with a third-party financing company, be sure to understand the details of how the financing company works before signing a contract. Understand your expected sales increase and your expected profit. If you sell low margin items, make sure that these financing charges do not exceed your profit margin. Otherwise, you would have gone through all this trouble for nothing.
Is Consumer Financing A Good Fit For Small Businesses?
Many large businesses provide consumer financing. For instance, you can finance a car purchase through any one of the major car manufacturers. Consumer financing is also available from some chain store home furniture sellers or large electronics stores. These are all large businesses that can afford a separate department–and sometimes even a separate corporate subsidiary–to take care of consumer financing.
But you’re a small business owner. Maybe you have only a handful of employees, and each of them is already busy taking care of other things. You already work twelve-hour days and things are still not done. How do you provide consumer financing when you’re already stretched so thin?
You might want to consider using third-party customer financing companies. This doesn’t preclude you from trying in-house financing in the future, if you pick one with a contract with no early termination penalties. It’s a quick way to get started, and it introduces you to an industry that you can become more familiar with, so you can make a more informed decision in the future.
Below are some pros and cons for your consideration.
Pros To Offering Third-Party Customer Financing
No Need To Increase Staff: The most obvious advantage is that you won’t need to hire more people to run the financing. As a small business owner, you know how difficult it is to find the right person–one who has the knowledge needed as well as the proper “fit” for your business. It might take several tries to ultimately find the right person, but with third-party financing, you won’t need to do that.
No Need To Worry About How The Details Work (e.g. credit checks): There are a lot of things you would have to set up from scratch to start an in-house customer financing operation. You’ll have to have the application forms, know where to run credit checks, figure out how much risk you can take, and give the customer the credit needed to make the purchase. With third-party financing, you won’t have to worry about any of this. You just send the customer to the financing company, and they take care of the rest with their existing workflow.
Legal Compliance:Â As already touched on above, when it comes to lending money, there are a lot of legal issues that could arise. If you’re in the US, then not only would you have to understand federal laws that could affect your operations, you’ll have to understand multiple state laws as well, if you operate an online store. These laws change from time to time, so you can’t set up a process and forget it. It would be easier to let a third-party financing company worry about following the laws. They might still (hopefully only accidentally) violate these laws, but at least if they do, they would be responsible for it. (Be sure the contract clearly states they’re responsible for any legal compliance issues.)
Less Need To Worry About Cash Flow:Â While you might still have to invest more money into your business to have enough inventory for increased sales, you are less likely to have to worry about a healthy cash flow by using a third-party financing company. A lot of these companies will fund you within two to three days of purchase, so you shouldn’t have to worry about cash flow at all.
Cons To Offering Third-Party Customer Financing
The Reputation Of The Financing Company Will Affect Your Own Reputation: A company’s reputation, especially where money is concerned, matters. When you recommend a financing company to your customer, like it or not, you’re guaranteeing that the company is reputable. If this turns out to be incorrect, then the bad reputation rubs off on you too. A business’s reputation is everything, and a bad one will run customers away from you.
Customers With Bad Experiences Might Not Come Back: Even if customers clearly understand that the financing company has nothing to do with your business, a bad experience with the financing company could still prevent them from coming back to you. Their shopping experience is ruined, and it’s highly likely they will subconsciously connect that bad experience with you. It’s not difficult to imagine that they might go elsewhere to shop in the future.
Customers With Bad Experiences Might Blame You: Related to the above, we know that people don’t always notice things that they should. This is why there will always be a portion of the customer base that thinks you and the third-party financing company are one and the same. If anything goes wrong, it’s very likely that they will blame you for the financing company’s mistakes. They might go online to complain, giving you a bad reputation that you don’t deserve.
You Must Share Revenue:Â Naturally, these third-party financing companies can’t provide their services for free. In fact, in addition to keeping the interest and fees paid by the consumer for the loan, many will want you to pay them for their services as well. Maybe your margins are high and you don’t mind, but if you do mind, then you’ll need to pick the financing company carefully.
Possible Long-Term Contract: Some third-party financing companies will require you to sign a long-term contract. As with all contracts, you’ll need to look at the possible penalties if you need to get out of the contract early. One contract we reviewed when researching for this article allows you to cancel but requires a 12-month notice period, which is basically the same as not being able to cancel at will. Make sure you’re not stuck with a company that you won’t want to work with for one reason or another (e.g. bad reputation) for longer than necessary.
How To Offer Financing To Customers: Options For Online & Brick-and-Mortar Businesses
If you have decided to offer financing to your customers, the way you tell your customers that financing is available and invite them to apply will depend on whether you operate a physical store or an online store — or both. It also depends on whether you’ve decided to do this in-house or through a third-party specialist.
If you’ve decided to offer financing in-house, then you can advertise any way you want to, as long as you have the application readily available for an interested customer to sign up. However, if you’ve decided to go with a third-party provider, then there are several ways to deliver information about the financing offer and payment options.
Online Customer Financing
For webstores, customer financing is often offered at checkout. The customer sees a financing button, along with other payment choices such as credit or debit cards. If the customer clicks the financing button, they must respond to a few questions. A “soft” credit check is performed. With some companies (e.g. Affirm, Afterpay), a decision to lend is made based on the soft check. With other companies (e.g. Square), a hard credit check is eventually required. (If you’re curious, this article explains the difference between soft and hard credit checks.)
After this, the customer is presented with a choice of how they want to finance the purchase–i.e. how many installments, how much per installment, and interest or other fees. Once the customer makes a pick, the online merchant is paid by the financing company, typically within a day or two after shipping.
As to the rest of online financing, a merchant is often supplied with banners and buttons that they can place on their website to announce that financing is available.
In-Store Customer Financing
If you run a physical store, then customer financing is done a little differently, though you’ll still need a connection to the internet just like online financing.
There are several ways a customer at a physical store can apply for financing. One financing company offers free-standing kiosks that customers can use to apply. Tablets can also be loaded with financing application software for the store clerk to hand to the customer. Yet others simply have the store clerk ask a few questions of the customer at checkout and enter that information online. Lastly, a customer can apply for some specific amount beforehand, the financing company can issue the customer a single-use virtual card, and the card number can be keyed in by the merchant just like any keyed-in credit card charge.
How Much Does It Cost To Offer Customer Financing?
The cost to offer customer financing runs the gamut, from free to something similar to the swipe of a credit card. It’s not always easy to find this cost on the provider’s website, however. (It’s much easier to find out how much the customer will be charged for taking the financing offer.) Very often, the company simply does not disclose the charges to the merchant but instead tries to sell their services as a way to increase sales. You can only find out the cost after you contact them.
Ten Customer Financing Programs For Small Businesses
For this article, we did a quick survey of the companies currently providing customer financing services for small to mid-sized businesses. We briefly discuss the companies we found below, but we haven’t reviewed most of them, so please be aware that we pass no definitive judgment about the quality of service each provides. We hope to have some reviews for you in the future.
In looking through these companies, we find that they can generally be categorized into three groups. The first group contains more traditional financing companies. Financing applications may take a day or two to process and be approved. A second group includes the so-called fintech companies–they have their origins in the tech startup world, and they’re here to “move fast and break things.” These companies tend to do a soft credit pull and then give you a loan within seconds. These loans tend to be of a smaller amount and they typically must be paid back within a year. Some of them are fee-based and do not charge interest. The third group seems to be a hybrid, featuring some characteristics of both the traditional and the fintech companies. They also do a soft credit pull and sometimes can offer you a loan for a very small amount very quickly. Typically, larger loans are also available with these companies.
Grouping the vendors we found below into the three categories above, we have:
With some of these companies, it was hard to find merchant-related information–i.e. sign up cost, processing fee, contract terms, etc. These companies tend to try to sell their services by touting how much more a merchant can sell if the customer had the ability to buy more. Signing up with them might mean that you never get to see any income from the financing side. Still, they seem to be worth investigating, so we encourage you to find a few that you might be interested in and contact them for details.
Lastly, if you look at the way these companies work–especially the fintech companies–you’ll see that there’s a strong potential that they might replace the entire merchant processing side of the credit card industry. If you look carefully about the nature of the credit approvals, loan amounts, and repayment terms, you’ll see that they work like charge cards, where each charge is judged separately based on the person’s current debt load and creditworthiness. It’s very similar to the American Express model. From a merchant’s standpoint, it might be a good idea to understand how these financing companies work, in case they do replace some credit card company functions in the future.
With the above in mind, here are some of the customer service companies we found that you might wish to look into further.
Flexxbuy seems to fall into the more traditional side of the consumer lending business. It has a relationship with over 20 lenders in its backend and can quickly set a customer up with the right lender, depending on the customer’s credit score.
With Flexxbuy, the customer can get a loan of up to $50,000. The website isn’t quite clear, but the wording in various places suggests that smaller loans might be approved instantly, but the larger ones can take up to 48 hours. There is a formal application to be submitted by the merchant. The customer doesn’t have to pay a penalty for pre-payment, and loan payback can be from 12 months to a few years.
Flexxbuy says the cost to the merchant is “customized,” and, since they work with several lenders, this probably just means that the cost varies depending on the lender. To sign up with Flexxbuy, there is an enrollment/setup fee for the merchant.
LendPro, like Flexxbuy, seems to fall towards the traditional lender side of the industry. They claim that they have lending relationships with more than two dozen lenders on the backend to provide financing for a wide range of amounts and for all types of credit scores.
When a customer finances through LendPro, the lending relationship is directly between the customer and LendPro. LendPro can integrate their financing application software with your website, so customers can see their financing options at checkout and file an application if they are inclined. They also have physical kiosks for physical stores, where a customer can apply for credit in person. A merchant can also buy a tablet and install LendPro’s software on it and then hand the tablet to the customer to apply for financing.
There are no other disclosures about how a contract with LendPro would work or how much they would charge the merchant per transaction.
Snap Financing calls itself a “lease to own” company. This means that, as a merchant, you might be sending your merchandise out to consumers, but you still own the item until the lease term is up. Then, the consumer can either buy the item outright or return it to you.
Lease-to-own arrangements are typically used for large furniture, appliances, electronics, and computers. If the goods are damaged during the lease, they still belong to you. (Presumably, you can deduct the damage from the price.) With Snap Financing, you’re working with a somewhat traditional business model. While it’s not clear on the website, it seems from the nature of the business model that the merchant still owns the sales contract. If the customer defaults on the (unsecured and high-interest) loan, then the matter is between Snap and the customer.
Snap funds your business within 2-3 days once the leased goods are delivered, so you are fully paid.
Affirm falls squarely within the fintech label, and it has the pedigree to prove it. The company was founded by Max Levchin, who was one of the founders of PayPal. Even now, it’s still taking money from venture capital firms, with the latest round of funding raising $300 million USD.
Affirm’s website is geared more towards the consumer than the merchant, so there are not a lot of details on how (or if) they charge the merchant to process a customer’s loan. On its backend, Affirm’s loans are financed by two banks: Cross River Bank and Celtic Bank.
The Affirm financing application can be integrated into various eCommerce shopping platforms and be shown to a customer at checkout as a push-button option. When a consumer applies, Affirm performs only a soft credit pull and then makes a decision to lend based on that pull. There’s no stated loan limit. If the purchase is made from an online store, then the payment can be applied at checkout. If the payment is at a store that’s not affiliated with Affirm, then Affirm issues the customer a single-use virtual card that can be used like a credit card.
Afterpay is yet another fintech company. It has a business model that looks very similar to that of Affirm, and it is also funded by venture capital investors. While Affirm seems to focus on providing financing for goods and services that cost a bit more, Afterpay seems to be focused on things that cost a little less.
Afterpay discloses a little more on their website on how they work with merchants. When the merchant makes a sale, the purchase is made between the merchant and the buyer. But the merchant immediately assigns the purchase contract to Afterpay so that Afterpay has the right to recoup nonpayment. After that, the merchant is still responsible for taking care of complaints and returns, but any questions on payments belong to Afterpay.
Afterpay’s services integrate with many existing online shopping carts. Consumers are presented with Afterpay as a payment choice at checkout, and they can apply for credit that way.
Afterpay checks the consumer’s credit with a soft credit pull and, once approved, the consumer is presented with several installment payment options and can see fees and the payment amount for each. The consumer picks whichever option that appeals to them. They can be charged a late fee, but there’s no interest or service fee on the amount borrowed, and of course, the customer can prepay or fully pay before the payment is due.
To borrow from Afterpay, the consumer will have to have an Afterpay account. A credit or debit card must be linked to the account, so Afterpay can automatically withdraw the installment payment from the account. (Which begs the question: why not just use the credit card instead?)
ViaBill is a European fintech startup. Merchants in Denmark, Norway, and the US can sign up with ViaBill.
Like Affirm, ViaBill focuses on bigger ticket items. They offer easy integration with online shopping platforms, easy and fast approvals, and installment payments linked to the debit or credit card used to set up the consumer’s account. The payment is broken into four installments, with the first installment due immediately at checkout. Afterward, ViaBill assumes the risk of fraud and credit risk. If the customer fails to pay, they are charged a late fee (but no “penalty fee”), and ViaBill handles everything related to non-payment/collections.
For merchants, ViaBill charges 2.90% + $0.30 per transaction, which is comparable to some credit card processing charges. After the goods are shipped, the merchant assigns the right to receive payments to ViaBill, but ViaBill may assign the right back to the merchant to deal with chargebacks, disputes, item returns, and some other conditions.
When a merchant signs with ViaBill, the contract can be terminated by ViaBill at any time for any reason or no reason, while the merchant can only cancel for any reason or no reason in the first three months. Thereafter, the merchant must give ViaBill 12-months notice before the contract can be canceled.
There is a setup fee to connect up to ViaBill. They fund the purchase five days after shipping. Be aware that if you sign with ViaBill, they don’t want you to work with any other consumer financing provider unless you both agree in writing that you can.
Vyze is a fintech startup that began in 2008. It was acquired by Mastercard in 2019, so if you sign up with them, you at least know that they are backed by a reputable business. Vyze doesn’t seem to be doing anything too different from the other fintech startups, however, so there might not be any other specific benefits to working with Vyze.
Like other fintech companies, it seems Vyze only does a soft credit pull; consumers can apply with just a few quick personal details. A customer can apply online, or if at the checkout of a physical store, apply from the store’s tablet loaded with Vyze’s app.
Once Vyze has the customer’s credit information, the software queries a first lender for approval. If the first lender rejects the application, then the software automatically pings a second lender in the queue, and then a third, and so on until one lender approves the financing.
Vyze’s website does not have much information for the merchant, so it’s difficult to tell if/how much they charge you for each customer you bring them, how they would handle returns or chargebacks, or any other details of a merchant’s contract with them.
VIP Financing Solutions
VIP Financing Solutions has an interesting business model. It seems to be a credit card processor that also does consumer financing (or vice versa). You can get Clover POS stations from them (it’s unclear if they sell or lease them, so be careful). They also have multiple lenders in the backend to support their financing activities.
No matter what you do with VIP, whether it’s credit card processing or customer financing, you’re charged the same rate: a 3.0% “Merchant Fee.” The website also claims that you’re not charged a credit card processing fee, but that 3% seems to cover more than enough of the usual fees associated with credit card processing. Once the charge is cleared, you are funded within 48 hours.
As to financing, VIP offers three types of financing:
A Store-Branded Credit Card:Â The shopper can be instantly approved and walk out with a card, which basically is a revolving line of credit specific to your business.
A No-Credit-Check Loan: The amount can be between $500-$35,000. The repayment is divided into four installments, to be paid within a short period of time.
A Traditional Personal Loan: Approval can take a few days, with repayment plans of up to 60 months.
We couldn’t find a merchant contract on VIP’s site, so we don’t know other details about how VIP works with its merchants.
If you are already a PayPal merchant, then you can offer consumer financing through PayPal Credit. Just activate the service as a form of permissible payment. Then you can advertise that the service is available by adding promotional banners already prepared by PayPal to your website.
When a customer uses PayPal Credit, the merchant is paid upfront (i.e. no need to wait for the customer to completely pay back the loan to PayPal). PayPal does not disclose how much it charges per transaction, but it also doesn’t say that the cost would be different from other PayPal transaction charges. So, each transaction likely costs the same as other PayPal payment transactions.
From the consumer’s standpoint, PayPal Credit is a loan between PayPal and the consumer. Once PayPal’s underwriter approves the loan, the consumer has to make minimum monthly payments. For purchases over $99, as long as the consumer pays the loan back within six months, there’s no interest on the loan. However, if the loan is not paid back completely within six months, interest is charged from the date of purchase.
PayPal will pull a soft credit check before approving a loan. The minimum starting credit is $250, and this might be increased from time to time. You can use the money in PayPal Credit to send to family and friends, just like sending cash. And, just like sending cash, you pay 2.9% + $0.30 per this person-to-person transaction.
The service is available to US consumers only.
As with PayPal Credit, if you’re already a Square merchant, you can use Square Installments. Square Installments can be used from the point-of-sale or from your virtual terminal, and they cost 3.5% per transaction. You can also integrate Square Installments into your electronic invoice, and that service costs 2.9% + $0.30 per transaction.
For a merchant to sign up, navigate to your dashboard and look to see if you’re already approved for Installments (approval sometimes depends on industry or location, business type, and/or volume and price of goods sold). If you are, then you’ll have to watch a video and answer a few questions to make sure you understand the terms of service. That’s all you need to do. You can cancel the program at any time. There’s no added integration needed, and Square can provide all the buttons and banners you need to advertise online to your customers that the service is available.
For your customers to apply for financing, they follow a link customized for your business and then enter their information. They will quickly get an offer after a soft credit pull, and the offer will include various monthly plans and total fees. Square pulls a full credit check if the customer elects to go forward with financing. Square Installments are used for purchases of $150 and up and the repayment terms are for up to 12 months.
For physical stores, Square Installments can be used with a digital card, which can be keyed in like any other purchase. The merchant is paid right away, and if the customer misses a payment, it doesn’t affect the merchant.
Here’s a more detailed article about Square Installments, if you’re interested in learning more.
Should I Offer Third-Party Financing For My Customers?
There are a lot of data-based arguments out there that suggest that making financing available to your customers translates to more sales. As a small business owner, the easiest way to do this is to go through a third-party financing company so that you won’t have to deal with the paperwork, the possible cash flow issues, the legal aspects of lending, and the defaults when a customer refuses to pay.
Third-party lenders aren’t willing to do all this for free, of course. Some will charge you a fee, and it’s important to understand how this fee works. It’s also important to think through other issues, such as how chargebacks and returns will be handled. Of the companies we surveyed above, many do not disclose much about how they work with the merchant at all. If you decide that you’re interested in working with one of these companies and contact them, be sure to ask questions such as:
Do they charge you for sending a customer to apply for financing?
Do you get a finder’s fee for sending customers?
How do they deal with merchandise returns? Are you required to accept a return, or can you simply refuse? Do you have to return the money to the customer? Or is that handled between the financing company and the customer? And if so, will the merchant have to return the money to the financing company?
How do they deal with disputes/chargebacks? What about fraud, such as a customer claiming that you didn’t ship a product when you actually did?
How do they deal with defaults? Some companies assign defaults back to you and you’d have to deal with that, so that seems to create more headaches for you.
Who handles customer service? If this is divided between the merchant and the financing company, how do you share the responsibility?
How quickly are you funded, and at which point in the process does a sale count as a sale?
You might have more questions, so be sure to write them down before you contact a financing company. That way, you won’t accidentally leave out a question.
If you decide that providing customer financing is just not for you, but you still want to explore ideas on how to increase the cash you have at hand to grow your business, be sure to check out some of our lending articles. We have picks for the best small business loans, advice on how to get a line of credit, and even information on startup grants. You might also want to consider invoice factoring or invoice financing.
Lastly, if you have had any experience with any of the providers above or want us to do a detailed review of a specific provider, do let us know by leaving a note below.
The post The Complete Guide To Customer Financing For Small Businesses appeared first on Merchant Maverick.
Businesses that have exhausted normal methods of acquiring capital may find themselves turning to less known methods, such as vendor financing. Like most forms of alternative financing, it’s less a broad solution and more a specific help for small businesses whose needs fall into a specific niche.
Is it the best choice for your particular small business financing needs? Read on to find out.
What Is Vendor Financing?
What is vendor financing? Another obscure form of alternative lending to keep track of? I know, I know.
Luckily, the basics of vendor financing (sometimes called seller financing) aren’t that complicated. Instead of approaching a third-party (a bank or online lender, for example) to get financing for a product or service, the vendor selling you the product finances it instead. Essentially, they’re providing the means to purchase their own products.
Since the vendor is taking on substantial risk in this type of arrangement, vendor financing is usually only an option for businesses that have a strong working relationship with the vendor, although there are exceptions.
How Vendor Financing Works
In a way, vendor financing harkens back to the barter system, with two businesses making a trade.
Vendor financing typically takes one of three forms, which I’ll go into in the next section. In either case, the vendor will allow you to acquire their goods or services in exchange for:
A promise of repayment
Equity in your company
Credit with which to acquire your goods or services.
Depending on the arrangement you agree to, the financing may not cover the entirety of the purchase. In that case, you’ll be asked to make a downpayment.
Types Of Vendor Financing
The term “vendor financing” encompasses a number of different arrangments a vendor can make with a small business. The three most common are:
If your vendor is extending debt financing, they’re essentially offering you a loan. But instead of receiving a lump sum of cash, you’ll receive the goods or services agreed upon. In many cases, the vendor will only finance a percentage of the cost of their item, which means you’ll have to produce a downpayment of some kind.
From here, debt financing looks a lot like a loan. You’ll work out a payment schedule with your vendor, as well as an interest rate–if your vendor wants to make the sale badly enough, there may not be one, but don’t count on it–and put up any collateral necessary. If you’re acquiring a tangible item, debt financing might resemble an equipment loan, with the item serving as collateral.
Whether or not this is a good deal for your business will depend on the terms agreed upon, especially in comparison to any loans you may qualify for. Mature businesses looking for vendor financing will probably prefer debt financing to equity financing since it has fewer long-term repercussions on your operations.
Vendor financing doesn’t necessarily involve taking on debt. In some cases, a vendor may offer your goods or services in exchange for a share of equity in your company. The vendor then becomes a shareholder, receiving dividends and participating in your business decisions.
In most cases, a business that agrees to equity financing will be a startup that doesn’t have the credit or history to qualify for other types of financing. Since you’re involving outside entities in your business operations, you’ll need to factor that into your business plans and risk assessments.
In less common cases, a vendor may be willing to trade their product for one of your own of similar value. These types of agreements are much more likely to be informal and between companies that already have a strong working relationship.
Vendor Financing Pros & Cons
So what are the pro and cons of using vendor financing?
You Can Bypass Financial Institutions Entirely: If you don’t match the profile of a good borrower, it can be difficult to get the money you need to buy inventory, equipment, or vital services. Vendor financing allows you to plead your case directly to the company you’d be spending your money with.
Startups Can Get Important Items: Startup financing is one of the great stumbling blocks when you’re starting a business. Without a business history, lenders may not want to take a risk on you. Equity financing gets around this Catch-22.
It Helps Vendors Make Sales: While “giving away” a product with an IOU may carry some risk, a deferred payment still allows a company to move inventory it may not otherwise have been able to.
You’re Limited To What The Vendor Sells: Vendor financing is only good at the company that you’re petitioning. With a working capital loan, for example, you can split your lump sum between multiple expenses.
It’s Not That Common: If you’re counting on vendor financing, you’ll likely end up constrained in terms of your choice of vendors.
It Exposes Both The Vendor & Buyer To Risk: Neither company is a bank. Vendor financing adds complexity to what would otherwise be a pretty simple retail transaction. The vendor needs to have a plan for if the buyer defaults. The buyer needs to read the fine print and make sure they have recourse under state law if they’re unable to fulfill the terms of the agreement.
When To Use Vendor Financing
If you’re considering debt financing, it’s probably because you have a strong working relationship with the vendor in question. Trust is the name of the game here, so being a reliable, valued customer will come in handy. Whether or not it’s a good deal relative to an equivalent loan will depend on the terms you’re offered, though it’s quite possible that you can end up spending less than you would servicing a traditional loan.
When it comes to equity financing, you’re looking at a more specific niche. Startups willing to part with some of their equity to obtain necessary equipment may find it easier to cope with than taking on personal debt.
Finally, any two businesses that are comfortable with the arrangement may be happy to swap services.
Final Thoughts On Vendor Financing
Vendor financing is a quirky but legitimate way to get your business the inventory, equipment, or services it needs, so long as you approach the matter with a clear idea about its perks and drawbacks.
For other ways to get vendors to finance their own products, you may want to read up on captive lessors.
Looking for forms of financing that don’t involve taking out a loan? Read The Merchant’s Guide To Invoice Factoring.Â Have a startup and need financing, but aren’t sure you want to give up equity right now? Find out how toÂ Get The Equipment You Need For Your Startup Business With A Loan Or Lease.
The post What Is Vendor Financing & When Should Your Small Business Use It? appeared first on Merchant Maverick.
Subscription-based business models seem to be everywhere these days. Emerging wine clubs, personal care-in-a-box subscriptions, wardrobe-of-the-month sites — even supporting a favorite podcast! Clearly, these types of businesses are finding success as people jump into subscriptions to save money, time, or just for the fun of getting a box in the mail. And it’s not just cheese-of-the-month clubs anymore. Software as a Service (SaaS) subscriptions are booming in both business and personal markets. This environment is ripe for subscription business models, but you need the right tools to process recurring payments while protecting your business from security risks.
Of course, businesses that serve a local market with more traditional recurring products and services like gyms, childcare, or home improvement services also rely on recurring payments for their revenue stream â whether thatâs automatically charging a credit card or manually sending an invoice.
Choosing a payment processor for this type of business is not a light decision, so letâs take a look at what Square has to offer in terms of solutions geared for the recurring payment model.
How To Set Up Recurring Payments With Square eCommerce
If you are about to launch an eCommerce subscription-based business or you are looking for a different payment processing setup than the one you have, Square should be on your radar. While Square doesnât provide complete âout-of-the-boxâ solutions for eCommerce businesses, they offer three main options for you to get your shop live, with some flexibility under each.
Square Payment Form and Transaction API:
If you are a developer or have the in-house developer support, you can create a custom payment experience that resembles the rest of your site. That means you can save a card on file using the Square Payment Form and set up recurring billing using your own subscription logic. Square also has digital wallet support so you can add Apple Pay, Google Pay, or MasterPass for faster checkout. Hereâs more information directly from Square if you opt to embed the payment form:
Square Payment Form provides secure, hosted components for payment data like card number and CVV, while enabling you to make it your own. Itâs designed to help buyers enter their card data accurately and quickly. Card data is collected securely and tokenized, never hitting your servers, so you donât have to worry about PCI compliance.
When you integrate Square Checkout, you can save a card on file safely, and you wonât need as much developer knowledge. This solution is a pre-built workflow that includes digital wallet support, and itâs all hosted on Squareâs servers. You wonât have as much wiggle room in regards to customization, but itâs still going to give you a fast, streamlined checkout experience. Square provides a technical reference guide to assist you in building what you need, including setting up recurring billing.
Choose An Integration:
If you want a simpler solution that doesnât require coding or technical expertise, a plug-in may be just the ticket for you to get up and running quickly. Of all the options available within the Square Dashboard, Chargify jumps out because it seems to offer everything a subscription service would need. According to Chargify:
Chargify bills your customer’s credit card on whatever schedule you define. In addition to processing one-time and recurring transactions, Chargify can handle free trial periods, one-time fees, promotions, refunds, email receipts, and even dunning (reminders for failed credit card payments) management.
Chargify plans startÂ at $99 a month, but you can work your way up the scale when it comes to additional options. In general, Square plug-in selections abound, so you can shop to find the most promising solution for your business right from your Square Dashboard under Apps. Hereâs a screenshot of a few options listed:
No matter which solution you decide on, you can rest assured that the burden of PCI compliance and security with payment processing sits on Squareâs shoulders, not your own. And the free support you get from Squareâs team if there is a chargeback issue also gives some much-needed peace of mind as well.
To find out more and shop eCommerce solutions, head to Square’s website and select eCommerce under the section, Software services to grow your business. If you want to learn more before signing up, read our post, The Best eCommerce Integrations That Work With Square Payments. And if you want to find out more about Square as an eCommerce solution in general, check out our Square Online Store and eCommerce Review.
How To Set Up Square Recurring Invoices
When you’re ready to set up a recurring invoice for your customer, Square makes it easy. You can create an invoice through your Square POS app or from the Square Dashboard. You can then set up the scheduling frequency of your recurring invoice, though you will need your customer to approve their card on file.
Whether you send a one-time or recurring invoice, enable Allow Customer to Save Card on File so your customer can approve. Then you’ll be all set for repeat billing.
Note: If you need to manually save a card on file from your Virtual Terminal at your computer, youâll need to print out the approval form so your customer can sign it first.
Hereâs a screenshot of what the setup looks like for recurring invoices within the Square Dashboard.
With Square Invoices, you can also request a deposit, either due immediately or within a specific time-frame. So for you business owners that charge a sign-up or other set-up fee, you can seamlessly add in a deposit request and cover all the bases.
Getting Paid with Square Invoices
When your customer makes a payment, credit card payments update automatically in their invoice. Your customer follows the Pay Now prompt to enter their details and can also approve saving the card on file.
Did your customer send a check or pay you by cash? You can also record payment manually when you open up the invoice. If your customer wants to pay over the phone, you can process the amount on your computer through the Square Virtual Terminal located within the Square Dashboard. And finally, you can process in-person payments and apply them directly to the invoice by swiping, dipping, or tapping your customerâs card to your connected Square Reader. Just make sure you go into Invoices and apply the payment to the existing customer invoice.
Square Invoices (read our review) also makes it easy to track when your customer saw your invoice and any activity within the account. You can quickly send a message to follow up or edit the invoice any time from your Square Dashboard.
How To Use Square Installments For Invoices
Another solution that may boost sales is offering payment plans through Square Installments. Square Installments for Invoices finances the cost for your customer, so there’s no need for you to invoice repeatedly; instead, you are paid upfront and in full by Square. Square Installments is currently only available to select businesses, however. Youâll need to apply, and if you are approved, the Installments option automatically appears as a payment option on your invoices and Square POS.
When your customer chooses Installments (either via their invoice or your Square POS), theyâll apply directly with Square Capital at the time of the sale. If they are approved, the balance is reflected in your account. Also note that after the sale, Square Capital takes on the liability of the charge, so you wonât deal with collecting or processing payments. In fact, Square instructs any merchant to direct all questions or issues your customer may have with their installment payments to Square Installments directly. Find out more about it on our post, How Does Customer Financing Through Square Installment Work?
How Much Do Recurring Payments Cost With Square?
Below is a breakdown of Squareâs payment processing per transaction. When you crunch the numbers, keep in mind that you are getting an all-in-one solution as far as payment security with PCI compliance and chargeback support. Square doesnât charge monthly service fees either, so what you see is what you get as far as costs go.
Invoice paid with card by customer: 2.9% + $0.30
Invoice paid with card on file: 3.5% + $0.15
eCommerce processing: 2.9% + $0.30
Square Installments for Invoices: 2.9% of the purchase price + $0.30
Square Installments at your Point of sale: 3.5% of the purchase price + $0.15
Square online payment API and SKIs: Free for developers to use + eCommerce processing fee
Plug-in apps integrated with Square: Price varies with each software provider
Should You Use Squareâs Recurring Payments Tools?
Setting up recurring payments for your customers takes a little bit more forethought and prep than a one-off charge. However, Square makes recurring invoices accessible by offering a range of solutions for both eCommerce and brick-and-mortar shops.
As far as third-party processors and eCommerce go, Square offers similar solutions as its peers. In other words, youâll likely need the help of a developer with any option you choose, including PayPal or Stripe â unless you opt for a plug-in app. That being said, Square enables you to get eCommerce up and running safely â whether that is through a pre-built workflow, easy integration with a plug-in app, or API developer tools. (If you do have theÂ developer expertise and a bit more wiggle-room in your budget, itâs worth mentioning that Stripe affords greater freedom to customize the whole process, add advanced reporting features, and a lot more. But you canât be shy with code!)
Still curious about Square? Why not give them a try and see for yourself? There is no fee to sign up and no binding contract required, so setting up an account may be the next step for you. You can also head over to our Square Review and read how it compares to the other solutions out there.
The post How to Use Square for Recurring Payments And Invoices appeared first on Merchant Maverick.
When hunting for a credit card, a loan, or another financing arrangement, you may come across offers advertising “no interest for 12 months” or “same as cash” financing. Take care, because often times, this arrangement will entail deferred interest. Deferred interest financing carries risks that are typically not well understood and often not explained clearly by the lender.
In this article, we’re going to tackle the murky subject of deferred interest.
What Is Deferred Interest?
Deferred interest is defined by Investopedia in the following way:
Deferred interest is the amount of interest added to the principal balance of a loan when the contractual terms of the loan allow for a scheduled payment to be made that is less than the interest due.
That’s the textbook definition of the deferred interest —Â interest that has accrued on a loan but hasn’t been paid. But how does deferred interest actually work in the real world? Let’s explore.
How Deferred Interest Works
Let’s say you purchased some exercise equipment with a store credit card offeringÂ deferred interest for 12 months in order to avoid having to pay the full cost up front. As the months go by without your balance being paid in full, interest will accrue on your card, but you won’t be responsible for paying it off — yet.
Now, if you pay off your balance within 12 months, this accumulated interest will not come due, and you will have paid for your purchase with what is essentially an interest-free loan. However, if you don’t pay off your purchase in its entirety within that 12 months, all the interest accumulated over that 12-month period (not just the interest on the portion of the balance you have yet to pay) is then added to the amount you owe.
One insidious aspect of this arrangement is that the kind of store credit cards that typically offer deferred interest financing normally have high APRs, thus increasing the interest charges you’ll be hit with if you don’t pay the balance in full within 12 months.
Deferred Interest VS 0% APR Introductory Rate
A credit card offering deferred interest financing under the sophistry of “no interest for 12 months” is not the same thing as a credit card offeringÂ an introductory 0% APR. I explained how deferred interest works in this particular context with the above example, but let’s say that instead, you purchased the exercise equipment with a newly-obtained credit card that sports a 12-month intro 0% APR period.
You’ll be able to pay off your balance over the course of your first 12 months without being responsible for any interest payments, just as with the deferredÂ interest card. The difference comes after your first 12 months are up. After this point, you’ll become responsible for any interest that accumulates on the remaining balance of your card, but notÂ for the interest you didn’t pay during your initial 12 months with the card.
If that sounds like a better, fairer, and safer arrangement, that’s because it is.
Pros & Cons of Deferred Interest
If everything goes right and you’re able to pay back the principal of a deferred interest loan in full before the period of deferred interest ends, congratulations! Your deferred interest loan has worked out for you and has not caused you any harm.
However, lenders bank (literally) on the increasingly high likelihood that everything will not go right for you during this period. Americans, particularly working-class families, face constant unexpected financial “challenges” from which they enjoy little to no protection. So if you lose your job or your child gets sick and you can’t pay your balance in full before the end of your deferred interest period, your lender will reap the financial benefits of your misfortune and you will be left high and dry.
Best Practices When Using Deferred Interest
BeforeÂ signing up for a deferred interest loan or credit card, seek out all possible alternative financing arrangements first. If you’ve exhausted these alternatives and find yourself in the unenviable position of having to rely on a deferred interest loan to pay for an expense, make absolutely sure you can pay off the purchase before the deferred interest period ends to avoid being hit with retroactively-applied interest charges.
Additionally, if you use a deferred interest credit card to finance a purchase, avoid charging anything else to this card if you possibly can. That’s because if you ring up additional charges on your card after your initial purchase, the standard purchase APR may apply to those additional charges, and under the terms of the CARD Act (legislation meant to protect consumers in other contexts), any payments you make on your debt will apply first to these additional charges, not to your initial purchase (the purchase on which the unpaid deferred interest is accumulating). That’s because the CARD Act mandates thatÂ when you make a payment on your card greater than the minimum due, the amount beyond the minimum due must be applied to the balance with the highest interest rate first.
So while you might assume that your payments will first apply to your initial balance, this is not the case. To go back to my example, you might think that you’ve paid off that exercise equipment you purchased once you’ve made payments on your card equal to the amount of said purchase. But if you’ve made any subsequent purchases on that card, a portion of what you’ve paid will go towards those balances first, leaving a portion of your initial balance unpaid.
And remember, even if you have just one dollar of that initial purchase left outstanding at the end of your deferred interest period, you’ll become responsible for paying all the interest that has accumulated over 12 months on that entire purchase, not just on that one dollar left unpaid.
In short, if you make a purchase on a deferred interest card, don’t use that card to make any further purchases. It can only get you in trouble.
The parasitic purveyors of deferred interest loans know that the consumers their products are aimed at are overworked, harried, and dealing with an unholy myriad of escalating financial demands — housing, education, health care, etc. These consumers often don’t have the financial literacy required to make sense of deferred interest offers and can easily find themselves hit with large interest charges on purchases they believed to be interest-free, leaving the most vulnerable people in our society open to being fleeced by unscrupulous lenders.
As a result, the cosseted 1% benefits at the expense of the beleaguered 99%. It’s as if a familiar pattern were at play here.
The most direct advice I can give on the subject of deferred interest financial products: Get a traditional credit card with a 0% introductory APR offer instead. Many popular credit cards (both business and personal) are offered with a 0% intro APR period of 9-12 months, though there are other cards offering 15 or even 21-month 0% APR periods. With these cards, you’ll never have to pay retroactive interest, only interest that accumulates on your card’s balance after your 0% APR period ends.
0% Introductory Period
American Express Blue Business Plus
0% APR on purchases and balance transfers for the first 15 months
Chase Ink Business Unlimited
0% APR on purchases and balance transfers for the first 12 months
American Express SimplyCash Plus
0% APR on purchases for the first 9 months
Capital One Spark Cash Select For Business
0% APR on purchases for the first 9 months
Bank of America Business Advantage Cash Rewards Mastercard
0% APR on purchases and balance transfers for the first 9 months
If such a credit card appeals to you, let Merchant Maverick help you out in your search!
Best Business Credit Cards For 2019
APR VS Interest Rate: Know The Difference
Top Business Credit Card Balance Transfer Offers
Credit Card Balance Transfers Demystified
The post Deferred Interest: What You Need To Know appeared first on Merchant Maverick.
If you own a business, you donât need anyone to tell you about the value of time-saving tools. Personally, whenever I uncover something that unexpectedly makes business run more efficiently, it can almost feel like winning the lottery â time is that important to me. If you juggle a lot of responsibilities during your day, you probably feel the same way. Thatâs why I was pretty stoked to pull back the curtain and see whatâs really behind the scenes when it comes to Square — one of the most popular payment processing apps available.Â
In this post, we’ll discuss some of the tools you may not have heard about that are available with any standard Square account. While I also get pretty excited about some of the premium options on offer (like Squareâs email marketing and CRM tools), we are going to stick with the freebies in this post. Keep reading to learn about tools you can start using today that may help you do business a little smarter.
Note:Keep in mind, we’re not touching onÂ all of the free software and tools you get with Square — just some of the most valuable ones. Check out our in-depth Square review for a closer look at everything Square has to offer.
When we talk about what is waiting when you open up a free Square account, one of the most important tools is your inventory management. Good inventory management is so important to keep your customers happy and ultimately help support your bottom line. Understanding what is most popular and identifying your best sellers can help you not only maintain the right amount of stock but support your promotional efforts as well.
So letâs start with the basics. After you enter in an item in your Square dashboard or the POS app, you can add the current stock amount, enable tracking, and set up a low stock alert right from the same screen. Whether you ring up the item from your POS, virtual terminal, or send an invoice, Square adjusts your stock automatically.
You can add item variants as well. Add different price points for sizes, add-ons, or customize however you like. Just name the variant, set the price, and add a unique SKU if needed. And if you sell in bulk, you can use Square’s variable price point feature to leave the price open based on the weight/quantity sold.Â
Need a customizable option like a topping change, a special dietary adjustment, or another type of swap-out? You can create modifiers for that, too! Unlike item variations, modifiers donât decrease inventory accounts. You can opt to assign a price to your modifier, however.
When it comes to managing your physical stock, it is worth mentioning that the free POS account isnât set up to print barcodes for your SKUs. Some business owners use a Dymo label printer as a workaround. If you have a lot of inventory and need a more robust solution for advanced inventory management (including barcode scanning and printing) in one solution, Square for Retail may be worth your while. Check out our full Square for Retail review for pricing and a better look at all the extra inventory-related features included with the POS.Â
When you use Square’s customer directory, the amount of data you have access to automatically builds with each sale. With just a swipe of the card, your list collects data such as your customers’ names, when they visited which location, and their visit frequency. During the sale, your customer may also have entered in their email address with you to get a digital receipt. Of course, if you are feeling bold, you can also ask your customers one-by-one for their email addresses so you can start building a healthy list.
Square’s customer database is accessible through Square Point of Sale or through the Square Dashboard. Under each customer in your directory, you can add a note, upload a file, view any feedback they have left you on their receipts, or create an invoice to send directly (more on that below).
When all of these customer insights build over time, you can start to get a clearer picture of who your loyal customers are, who has visited more than once, and who hasnât visited you in a while. You can also see what their favorite products are — all of which is useful data for your business in general, and especially for marketing purposes.Â
Again, the Square Customer Directory is entirely free to use, and it syncs with all of Square’s other tools — that includes paid software options such as loyalty and email marketing. The Square email marketing tool lets you segment customers,Â then customize email campaigns based on their habits. Square has pay-as-you-go pricing at 10 cents an email, or you can opt for a monthly subscription to send unlimited emails. Square offers a 30-day free trial for an email marketing subscription, and pricing starts at $15/month for up to 500 customers.
Card On File
You can make it easier for your repeat customers to order by phone or for a future invoice by saving your customer’s credit card information using Square’s Card on File feature. Be aware that your customers have to âsign offâ so you can appropriately save their card on file, however. If you are completing a sale on your computer through Squareâs Virtual Terminal, you will be prompted to print out the approval release and have your customer sign it. Keep this document in a safe place, because it proves you received their permission to store their card and can protect you from chargeback issues.
If you are at your free Square POS app, your customer can approve saving the card on file by entering in their zip code at the permission screen. After that, you can process their payments quickly and easily with no need to present the card. While it costs nothing to store a card on file or use the feature regularly, keep in mind that you will pay a little more with each transaction (3.5% + $0.15 per transaction instead of 2.75% per swipe/dip/tap) because they process as card-not-present, rather than card-present.Â Â
Is Card On File Secure?
Square lets you store your customerâs credit card information with their approval, and yes, itâs fully compliant with the payment security standards set up by the PCI-DSS. Thatâs because when you enter credit card data, it is only going through the secure Square app. Also take note that when you enter in credit card data â whether during a sale or saving a card on file, the full number isnât viewable to your or your staff once itâs entered in the system.
Securely saving customer card data is vital to your financial protection as a business and prevents very costly fraudulent risks. For more about Squareâs security, check out our related post, Is Square A Secure Way To Accept Credit Card Payments?
Gift cards may not be the first thing you think of when it comes to business tools, but here are some pretty neat statistics for you: In a 2018 press release, First Data shares a study that found that consumers, on average, spend $59 over the original value of the gift card they receive. Not only that, but shoppers plan to spend 55% of their annual gifting budget on gift cards. That is no small potato when it comes to amping up your revenue.
If Iâve piqued your interest, I have some more good news. Square’s digital gift cards are completely free for you to sell. If you want to offer physical gift cards, you could start with a stock of 20 for $40 or opt for higher quantities with a significantly lower cost with each tier. When your customer pays for the gift card using a credit or debit card, standard processing fees will apply. (There’s no charge for payments made with cash.) When it comes time for the gift recipient to spend with you, you wonât face any additional costs. Square treats this transaction like cash, and they only deduct the amount of the sale from the card. And it’s great that you don’t need to pay any monthly fees to accept gift cards — you just pay the cost of the physical cards (if you want them) and any associated payment processing when purchased.Â
Invoicing & Installments
When it comes to invoicing clients, Square makes it pretty easy. First, you can send an unlimited amount of professional-looking invoices for free. And instead of your customer having to call you with their number or waiting for a paper check, they follow the prompts and pay securely online. You can also send files, images, contracts, or attach information along with the invoice.
If you sell larger ticket items and want to finance your customers, you may also be interested in Square Installments. With this service, you can let your customer pay over time, while getting all of the funds upfront from Square. Thatâs because Square takes the risk by checking their credit and approving or denying the purchase. To find out more about letting your customers pay by installments, check out How Does Customer Financing With Square Installments Work?
If you want to assume more of the risk or set up a layaway program, however, you can also send out a regular invoice to request a down payment or partial payment as well. There is simply a lot of flexibility afforded with invoicing and installments. Read our Square Invoices Review to find out more about this tool and how to use it for your business.
Don’t have a card reader handy? Does a customer want to pay over the phone? You can accept payments securely at your own computer when you log into Square dashboard and go to your Virtual Terminal. There are many scenarios when taking payments at your virtual terminal can empower your business model — and it makes for a great backup if other devices are misbehaving.Â
In any case, you can still take payments quickly via Square’s Virtual Terminal. You can manually enter in the credit card information, or you can pull up a customer in your directory and charge a card you have saved on file. If you have a Mac or Chromebook, you can still connect a basic magstripe reader and swipe the card at your computer, too!Â
Square charges no software fees to use the virtual terminal and it’s included with all free Square accounts, but you will still have to pay transaction costs. With keyed entry, you’ll pay 3.5% + $0.15 per transaction, or 2.75% for swipe transactions.
At first glance, the Square Card may seem like just another line of credit, but it isnât. The Square Card is a debit card that gives you instant access to any of the funds that are in your Square account in real time. So why are so many business owners stoked about the Square Card? For one, it can help manage and organize cash flow. One way to separate business expenses from everything else is to keep all of your business expenses on your Square Card. It makes sense because youâll also always have an itemized list of exactly what you spent at the Square app under âCard Spend.â
Keep in mind that once you get the ball rolling with your Square Card, your funds are automatically going to sit in your Square balance unless you manually transfer funds into a different account. You can do so at any time and Square will deposit funds in the next 1-2 business days. If you want your funds deposited into your main bank account faster, you can also opt for a same-day instant deposit for the fee of 1% of the total amount.
When it comes time to spend your balance, the Square Card is a debit card accepted at any merchant that takes MasterCard. As far as cost, the Square Card is completely free with no annual or usage fees whatsoever. The other cool bonus is that you get a 2.75% discount at all other Square merchant locations. If you have a Square account, you can request your free Square Card under Deposits at the Square Dashboard. Note that Square doesnât automatically send you a card when you open your account.
Is Square Right For You?
There is no doubt that Square offers an abundance of tools and add-on software apps that can help you run your business more efficiently. Utilizing inventory management tools can help you stay on top of the ebb and flow of demand, and payment processing options offer flexibility when you need it.
We’ve only scratched the surface when it comes to Squareâs tools because there are many layers to Square’s solutions. Check out our Square Review to get even more details about features and pricing so you can make the decision thatâs right for you. You can also set up a free Square account and play around in the dashboard and check out the tools yourself.
The post 6 Free Square Tools To Make Running Your Small Business Easier appeared first on Merchant Maverick.
Square is best known by online sellers and brick-and-mortar shops for its secure credit card processing solutions. With a free mobile point of sale app — and free credit card reader–, Square has made it easier for the everyday small business owner to start taking credit cards. Card readers like Square’s also make it more convenient for shoppers to buy without carrying cash. That can be a win-win for everyone involved with the sale.
Because a business owner no longer has to purchase an expensive POS system to process credit card payments, itâs no wonder that the use of Square has rapidly grown over the last few years. In fact, a surprising number of businesses still did not accept credit cards at the time Square was launched. For a solo entrepreneur or a smaller shop, it used to be a lot more expensive and time-consuming to get started (not to mention more than a little intimidating, given PCI compliance and other regulations). Nowadays, you can find these portable credit card readers everywhere â from your favorite ice cream place to high-end boutiques, salons, and even consulting agencies. If youâre buying at a local shop, there is a good chance that Square is the company processing your payment.
In typical Square fashion, Square Installments provides a more accessible option for businesses that want to offer financing to their clients. If your company sells higher ticket items â from $250 to $10,000 â and youâd like to offer on-the-spot approval and financing to your customers, read on to find out more about Square Installments. But first â a little primer on customer financing.
What Is Customer Financing?
Before we dig too deep into Square Installments, letâs cover the basics of customer financing. By financing a purchase, customers can take home a product or use a service right away without paying for it in full at the time of purchase.
A common example of customer financing would be heading to the dealership and leaving with a new-to-you car â and a payment plan for the next three years to pay it off. Getting the newest version of your phone and rolling payments into your mobile phone bill is also another (more painless) way to finance an upgrade for your phone with less sticker shock.
Financing makes things a little easier on your customer, but it shouldnât require you to wait for the cash. When you offer to finance through a third-party like Square Installments, you sell your product or service and permit payment to be settled directly between the lender (in this case Square Capital) and your customer. Square pays you in full at the time of purchase.
Financing customers is all about convenience and accessibility. For your customers, financing can make large ticket items easier to purchase with predictable monthly payments spread out over time. Instead of shelling out the entire lump sum, they have more time to pay. This makes for an easier sell for your salesperson and a more comfortable decision for your customer.
When a purchaser thinks about what they are buying in terms of monthly vs. the total amount of dollars, financing can significantly lower the âsticker shock.â Giving purchasing flexibility to your customers will make buying from you a more attractive and accessible option â and of course, thatâs good for your business, too.
Companies that invoice monthly payments for ongoing services are also offering a financing option to their clients, in a way. Yet anyone who has a business model based on retainers or monthly agreements knows that sometimes when the bill comes due, it doesnât always get paid â possibly because the person you invoiced has bad credit or is in financial trouble. These issues can be virtually nonexistent when you let Square Installments pre-screen and approve your clients â and take on the financial risk.
Read on to find out how Square Installments works and how much it costs so you can decide if Square Installments services are right for you.
How Does Square Installments Work?
There are two ways you can use Square Installments for your business: at the point of sale or via Square Invoices. Once you sign up for Square Installments, your business will get a custom URL. This web address is just for your business and is the link youâll send to every customer who wants to apply for financing.
The Square Installments Process For In-Store Sales
Once you share the link with your customer, they’ll follow the instructions from their smartphone and fill out a short online application. In almost all scenarios, customer approval happens in real time, right when theyâre ready to purchase at your shop.
If approved, they can accept one of the financing options on offer and will receive a one-time-use number for a digital card they use to pay you for their purchase. The number is valid for seven days, and your customer can only redeem it at your business.
When your customer is ready to buy, theyâll present you with the digital card number given to them by Square Installments; you will key that number directly into your Square Point of Sale app, online through Square API, or through your virtual terminal.
Square pays you in full for the amount at the time you process the approved application.
Square Invoices From Square Installments
Square Invoices allows you to send your customers invoices through Square as well. After you are approved and set up, the option for installment payments will appear on your invoice automatically. Once your customers receive your invoice, the process is similar to the one above â they fill out an online application, can pick a plan, and once approved, you get paid upfront and in full.
To spread the word, Square will also sendÂ you some free marketing material â both in print and in the form of a banner for your website so your customers wonât miss this new option for buying with you.
You Donât Need To Be A Financing Expert
Worried about the fine print and fielding financing questions? Donât be. If your customers have questions about Square Installments, they’ll contact Square directly. In fact, because this is considered a âhighly regulated financial product,â itâs essential to pass any questions or concerns off to Squareâs own customer service folks. And of course, this arrangement means youâre not burdened with the nitty-gritty details of financing or payment collection.
How Much Does Square Installments Cost?
If youâre a business owner considering whether or not the cost is worth the convenience of the service, here are some figures to help you crunch the math.
Square Installments for Square Invoices costs 2.9% of the purchase price plus $0.30 per transaction. Square Installments at your Point of Sale costs 3.5% of the purchase price plus $0.15 per transaction. If a custom rate applies to your business for keyed-in Square Invoices transactions, this rate also applies to any Square Installments transactions.
The good news is that there are no recurring monthly usage fees or long-term commitments. You can cancel the service any you time want with no fees or contracts for your business to worry about.
For a customer who is considering using Square Installments to pay for a purchase, the annual percentage rate will vary depending on a few different factors. However, every customer will have more three options when it comes to repaying the loan. Square makes things upfront and easy to understand for the borrower, with ease of use in mind.
Should You Use Square Installments?
The main benefit of Square Installments is that customers can pay over time — making them more likely to buy and making your business more likely to sell more inventory. Whether to break up payments for a big purchase that a customer normally couldnât afford, or simply to offer a convenient option other than cash or checks, financing through Square Installments can be a valuable tool for your sales team to leverage.
When the average business owner thinks about customer financing, one of the biggest concerns is that the customer gets possession of the product or service without paying in full. While that may be a concern if you offer in-store financing and manage it yourself, in this case, Square takes on the financial risk entirely. You get paid right away and let Square manage the installments.
There are some important things to keep in mind when you consider whether Square Installments services are right for your business, however. As noted above, Square Installments isnât free. Also, keep in mind that Square Installments is only applicable for purchases between $250 and $10,000 â so businesses that deal with higher ticket products or services will need to consider other options for financing.
When you make the final decision to use Square Installments, consider the benefits vs. the costs. Here are a few questions to ask:
Would your target market and current customers likely make the purchase anyway? (In other words: How âwarmâ or âcoldâ are the people who come to your online sales page or place of business?)
Does opening up financing options also open up the possibility of a new target customer or a larger final sale?
If you send out invoices, will Square Installments give you a more convenient or secure option to take secure payments and prescreen users, despite the cost?
For any business owner, the benefits and conveniences should outweigh the cost of Square Installments per sale. Because you donât need to sign any long-term contracts to use Square Installments, it might be worth it to try the service for a bit, see what you think, and compare sales over the next few sales cycles to be sure either way.
Learn More About Square
While you consider whether or not you want to jump in and offer Square Installments as an option for your customers, check out some of the other reviews for Square services. Find out how much Square charges for their primary services and get armed with more information about Square processing to see if these payment options are right for your business. If you want to see the service for yourself, sign up for a free Square account today and check it out!
Free App & Reader
Square for Retail
Square for Restaurants
Free, general-purpose POS software and reader for iOS and Android
Easy integration with popular platforms plus API for customization
Specialized software for more complex retail stores
Specialized software for full-service restaurants
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