Approaches to offer customer financing

If you’re thinking about offering your customers financing, this article covers the three approaches to offering customer financing –  a buy now pay later (BNPL) company, a traditional consumer financing company, or do it yourself (with easy to use software like Paythen). We discuss the pros and cons of each approach below.

Outsource customer financing to a buy now pay later company (more $$$ and higher fees, if you’re eligible)

A popular way to offer customer financing for businesses that are eligible is outsourcing it to a buy now pay later company like Klarna, Affirm, or AfterPay. With this approach, while it’s easy to get started, you do pay a much higher fee, and give away your customer relationships to these companies – your customers essentially become their customers over time. You also have no flexibility in how you structure your customer financing – you can’t decide billing intervals, amounts, or anything else. You take what they give you. You can’t even cover their fees by adding a surcharge.

In exchange though, you take on zero risk since you get paid upfront and can get additional sales driven by these platforms. Over time, it is common to lose your customers to these very platforms though as they become shopping super-apps and encourage shoppers to begin their shop on their sites (instead of yours).

BNPL companies need volume – they need millions of customers using them every day to make money. This leads to them promoting their own platform and site as a shopping destination for your customers. They have shareholders to keep happy and lofty valuations to justify.

This means your customers, who you worked hard to acquire, are more likely to go to afterpay.com or klarna.com instead of your site for their next shop. On these sites, your business is just one of thousands, and your previously loyal customers are easily distracted by bigger brands, competitors, and deals.

Outsourcing customer financing can be the right approach for you depending on where you’re based, where your customers are based and the type of product  you sell. This approach can be more suitable than doing it yourself if you have access to and are eligible for a deeply integrated solution – eg: if you are a Shopify Merchant based in the US, with customers also based in the US, and your average order value is not higher than their limit, Shop Pay Installments is a great product.

One critical consideration if you’re eligible to use BNPL companies like Afterpay, Klarna and others is how much you value your customer relationships. How expensive is it for you to get new customers? Because you’ll need them.

Once a customer has made a purchase using one of these providers, the emails they get are from the buy-now-pay-later company, and not your business. This slowly helps turn your customers into their customers and puts their brand front and center, instead of yours. If you’re a small business trying to build a loyal customer base, consider how much control (of your customers, pricing and brand) you’re willing to give up in exchange for getting paid upfront.

We have a detailed side-by-side comparison of BNPL vs. doing it yourself with easy software at the bottom of this page. Go there now.

Outsource customer financing to a traditional customer financing provider (clunky and outdated)

There are other, more traditional customer financing providers too but they typically have a poor customer experience, and clunky, long approval processes for customers. We won’t cover these in too much detail because of how limited they are. We don’t recommend these for most small and medium sized businesses (since most won’t even work with you without a large annual $$$ volume commitment).

These traditional consumer financing providers typically require you to contact them to schedule a call or demo, then talk to a salesperson, in some cases pay an “implementation fee” and in all cases, their pricing is “on request”.

This lack of transparency and clarity are big red flags for any small and medium sized businesses that like to be agile, offer great customer experiences and want transparent costs. These companies can makes sense as an option for large businesses but even then, they are extremely limited in terms of eligibility, and usage and deliver a very sub-par experience for customers. Even Apple, outside the U.S. has an extremely clunky and limited customer financing option (where available).

Offer your own customer financing (lower fees, maximum control)

We’re biased, but we recommend most businesses should consider offering their own customer financing. In the past, this would have been a complicated and expensive exercise with much additional admin. However, with easy customer financing software like Paythen, this is very simple and mostly automated to manage, with minimal added admin.

By offering your own customer financing, you retain full control of your brand, your customer relationships, and the flexibility to offer financing exactly how you’d like – with fees, billing intervals and any terms you set.

Paythen automates the process and gives you a full admin dashboard so you can easily track everything. With this approach, you can offer financing to all your customers anywhere in the world, and even in different currencies.

You can choose to add surcharges and additional fees, incentives to repay early, discount codes, billing intervals that work for your business – whether it’s 8 weeks, 6 fortnights, 12 months, and much more.

When you choose this approach, you remain in control of your customer relationships, and your brand. All emails and customer-facing pages contain your logo and colors and there is no platform trying to take your customers away.

Unlike the BNPL or traditional customer financing approach, most businesses across the world, with customers based anywhere, can use this. The only criteria is you have to be able to open an account with Stripe to process payments. Stripe is available to businesses in 47 countries and your customers can be in any country. Even businesses that are not in supported countries can use Stripe with Stripe Atlas.

Paythen doesn’t require code, or even any technical know-how. It is plug and play and takes only a few minutes to set up.

If you’re looking for a way to offer customer financing but want to retain control of your pricing, your customer relationships and your brand, Paythen may be the right tool for you. We have a fee-free 7 day trial, then just a low 2% per transaction with no other fees or charges. No credit card needed.

As with all billing systems, this is separate to the Stripe payment processing fees which are typically between 1.6% and 2.9% depending on your country. Paythen works with and requires Stripe to process payments. You can connect your existing Stripe account or create a new one easily when you sign up for Paythen.

Here’s a side-by-side comparison of outsourcing your customer financing using BNPL providers vs. offering it on your own with Paythen:

While we are biased, we believe setting and controlling your own customer financing, with your own branding, and critically, your own customer relationships, is a better option for many businesses. The fact that you pay significantly lower fees makes it even better. For certain types of businesses where you must get paid the full amount upfront, despite higher fees and less control, a buy now pay later provider might be more suitable. In fact, some customers even use both Paythen and a buy now pay later provider for different contexts.

The best way to see if Paythen is the right fit for you is to try it out. There’s a 7 day fee-free trial and it takes only a few minutes to get started. If you have any questions, or need a hand getting started, just reach out via the chat icon or email hello@paythen.co – we’d love to help.