In today’s competitive business landscape, numerous home improvement companies are turning towards indirect customer financing as an effective method to boost sales, extend customer reach, and increase affordability for their offerings. However, a common misconception is that a business becomes responsible for managing debt collections by offering this type of financing. This is a myth that can be readily debunked. So, let’s dive into it and separate fact from fiction.
What is Indirect Customer Financing?
Before diving into the myth-busting, let’s first cover what indirect customer financing entails. In a nutshell, this form of financing involves third-party financial institutions providing loans or credit to customers, enabling them to purchase goods or services from a business. The company doesn’t lend the money; instead, it partners with a financial institution, which handles the financing part of the transaction. In this scenario, the business facilitates the connection between the customer and the lender.
Myth Debunked: Business Responsibility in Debt Collections
One myth regarding indirect customer financing is the perceived responsibility businesses have in collecting debts. Many believe that if a company offers this form of financing, it inherently becomes responsible for chasing down unpaid debts. This is far from the truth.
When a customer agrees to an indirect financing option and signs the associated paperwork, the financial responsibility shifts from the business to the lending institution. This means that once the transaction is complete and the customer has received financing from the third-party lender, the company gets its payment in full. From this point onward, if the customer defaults or misses payments, the lending institution bears the responsibility, not the business.
This arrangement benefits home improvement businesses in multiple ways:
Risk Reduction: Since the business isn’t lending its own money, it doesn’t have to shoulder the risk of unpaid debts.
Focus on Core Operations: Not dealing with debt collections means businesses can focus on what they do best—providing top-quality services and enhancing the customer experience.
Enhanced Customer Relationships: By not having to engage in debt collection activities, businesses avoid potential conflicts and strained relationships with their customers.
Why the Myth Persists
This common misbelief often happens because of the confusion between direct and indirect financing. In direct financing, the business lends money to the customer and is responsible for collections. However, as discussed, indirect financing keeps the company out of the debt collection loop.
Indirect customer financing is an excellent tool for businesses to increase sales and make their products or services more accessible to a broader audience. However, it’s essential to understand the nuances of this financing model, especially in debt collections. Contrary to popular belief, businesses are not on the hook for collecting unpaid debts when they offer indirect financing. That responsibility, along with the associated risks, lies squarely on the shoulders of the third-party financial institutions. As always, understanding the fine print and having clear communication with financing partners is vital to a successful and mutually beneficial relationship.
Are you ready to grow your home improvement company with indirect customer financing?
Partner Forward with Salal Dealer Direct
We team up with contractors nationwide to provide their customers with affordable financing for various solar and home improvement projects.
We can offer some of the most competitive rates and dealer fees because we’re part of a member-owned credit union. That means our profits return to our members—and business partners—through lower rates and fewer fees.
Our Dealer Direct Financing programs feature:
- An online loan application with fast credit decisions and a high approval rate.
- Terms and loan amounts are available to fit various budgets and project sizes.
- Partners pay ZERO dealer fees on our standard program.
How to Start Offering Salal Dealer Financing to Customers
We’re serious about helping your business grow with fast funding times and personalized support from a dedicated and experienced team of lending specialists. To get started, our dealer application process requires these documents:
- Completed dealer questionnaire
- Current income statement and balance sheet
- Copy of business license and/or contractor’s license
