Your Business Credit

How to use customer financing to get cash into your business

Some financially secure customers may be happy to pay you ahead of time for things you typically sell them


In customer financing, customers provide the money you need to run and grow your business so you don’t have to get it from other sources, like a bank loan or outside investors. Some financially secure customers may be willing to pay you for goods or services ahead of time.

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Many small business owners are disappointed that they haven’t yet gotten emergency funding from the federal government’s Economic Injury Disaster Loan program or the Payroll Protection Program, which ran out of funds.

It’s possible these funds may still arrive, particularly if the PPP gets additional funding, but if you’re running out of cash, it’s time to go to plan B, C or D.

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Customer financing is often a great approach. In customer financing, customers provide the money you need to run and grow your business so you don’t have to get it from other sources, like a bank loan or outside investors.

Although it may not seem like anyone has money to spend right now, not every customer’s financial situation is the same, and some customers may be happy to pay you ahead of time for things you typically sell them.

If you serve consumers, consider that although many small business owners and private sector employees have seen a sudden loss of income, many public sector employees are still seeing their paychecks come in.

Retirees and high-net-worth individuals who depend on income that comes from sources other than paychecks may also have the means to pay you ahead of time.

Similarly, if you serve B2B customers, do some research into the industries that are doing well right now and look for creative ways to offer your services and products to those types of companies.

Here are some ideas on how to structure customer financing:

Ask if customers will pay recurring bills at the start of the month

If you offer a service or retainer arrangement in which customers are billed at the end of the month, do a one-time campaign to ask if customers will switch to paying on the first of the month. This means they’ll pay more frequently for one billing period. Offer a financial enticement, such as a discount code, to customers who make the switch.

Bundle your services

Coaches and other pros who charge by the session may find that customers are willing to pay for the next few sessions in advance if the services are sold in a package of five or 10 sessions, especially if you offer a discount if they pay ahead of time. Consider marketing your services as a program, rather than one-off sessions, so customers see the value of purchasing the sessions in a bundle.

Offer a discount to customers who pay you now for future work

Many home improvement contractors have been grounded by shelter-in-place rules, but that doesn’t mean you can’t start booking jobs for later in the year. Offer customers a substantial discount if they commit now to paying you in full ahead of time for a future job. This strategy works best with customers who know and trust that you will show up and do the work when the time comes.

Ask for bigger deposits

If you do work that requires deposits, consider increasing the size of the deposits on your next jobs. For instance, if you normally charge one-third upfront, ask for one half.

Do a crowdfunding campaign

If you’ve been working on the idea for a new product, consider posting a crowdfunding campaign on Kickstarter or Indiegogo. Allow customers who want to support your campaign to order the product in advance, so they are essentially financing the manufacturing.

This approach works best for entrepreneurs who have a large social media following, so they can generate a lot of publicity for the campaign.

Provide customers with a financing program

Service providers such as Fund My Contract allow merchants to offer financing to their customers. This approach can work well if what you sell is a major purchase so you don’t have to, in essence, finance it by billing customers later or in installments.

Bottom line

Although the COVID-19 crisis has been stressful for many small business owners, it could be an opportunity to try new financing methods that you’ll want to keep using once the world is open for business again.

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The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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