Retailer financing or dealer financing is a credit facility to
spread the cost of purchases into affordable payments. It makes
shopping highly flexible, especially during times of financial
stress like the one induced by the COVID-19 pandemic.
The retailer finance option is particularly beneficial during
high-value purchases, allowing buyers to defer the payment or
spread it out over an extended period. This mode of payment is
flexible, and dealers offer different repayment options. While
it is a buyer-centric financing option, it is also beneficial
Read on to learn more about retailer financing and how it
benefits customers and retailers.
What Is Retailer Financing?
In simple terms, retailer financing refers to a type of
short-term unsecured credit that retail businesses offer their
customers. This is a typical recourse taken to manage inventory
and boost sales and is offered to buyers with a good credit
Sellers offer this mode of financing to buyers at the point of
sale. Customers get a credit on their purchases. They can then
defer payment or spread it out, making their shopping experience
simpler, quicker, and more convenient.
The seller, in turn, sells the credit to a financing institution
that provides retailer financing for business as a service.
These institutes can either provide credit through the retailer
or set up separate payment options. Financers can take various
measures to secure payment.
Retailer finance has traditionally been common in high-value
purchases like automobiles. Today, it is also prevalent in other
segments of the retail industry. Retailer financing allows
retailers to arrange finances for their internal requirements
without affecting overall business value. Internal requirements
can range from effects of fluctuation in demand and supply on
the inventory to salary payment, staff training, etc.
Retail financing can take various forms and may or may not
include added interest.
Retailer Financing Options
There is no one-size-fits-all approach for customer convenience.
Nevertheless, there are multiple variants when it comes to
retailer payment options. Various types of payment modes
EMI refers to the type of financing where customers have to pay
the total amount over an extended period of time with additional
interest. This is most similar to a traditional loan, but a
retailer offers it instead of a traditional financing institute
like a bank.
No Cost EMI
As the name suggests, this is similar to EMI but with one key
difference: no interest is added to the product's price.
Instead, this financing method simply divides up the total price
into smaller amounts payable over a period of time. Also known
as "0% financing", this method allows customers to purchase a
product without paying any extra amount.
A bullet loan is another method of retailer financing especially
popular in small value purchases. In this type of financing, the
buyer can pay the entire amount of the product lump sum later.
This is common when customers need to buy but lack sufficient
funding. If they can guarantee the payment later, retailers
usually provide credit in this form. Institutions usually charge
an additional interest amount in case of such financing.
Buy Now Pay Later
Buy Now Pay Later or BNPL has quickly become one of the most
popular modes of financing in the online retail space. It has
traditionally been the most popular form of retailer financing
on a small scale and was common while purchasing essentials,
medicines, etc. In simple terms, BNPL allows customers to buy a
product and pay for it later. As a result, there are usually no
additional interests charged on the product price.
Funding agencies provide this retailer solution to benefit both
the buyer and the seller. Buyers get the convenience of
purchasing even during low funds, while sellers get their
payment up front with no delay. Buy Now Pay Later facilities by
institutions like KredX allows retailers to improve sales and
attract new customers, while allowing for a great shopping
Retailer Financing Benefits For Businesses
If a business can find the right channel partner, it can enjoy
the following benefits of channel financing:
Expand Customer Base
Retailer financing is an attractive proposition for customers.
Therefore, they will prefer to purchase from retailers who
provide this convenience and trust. They are also likely to
spread the word about such sellers themselves. Businesses can
thus attract more customers with the help of retailer finance
Enhance Cash Flow
An unobstructed cash flow is essential for all retailers to meet
their business obligations and growth objectives. Retailer
financing allows sellers to acquire cash via financing
institutions immediately for a product sold, even while
extending credit to the customer. This ensures uninterrupted
cash flow for the business.
One of the most visible benefits of retailer financing is
increased product sales. When customers get the credit option
for purchase, they naturally tend to purchase more at one go or
buy higher value items. This rise in sales also helps clear the
inventory and free up space for stocking.
Retailer financing allows sellers to increase sales, clear their
inventory, replenish stocks faster, and access working capital
even while providing credit. All this improves operational
management and increases business growth and expansion scope.
Greater Customer Loyalty
Retailers give customers an impression of trust by extending
credit via retailer financing. Moreover, the ease of making
payments at their convenience makes this an attractive
proposition for customers. Customers reward this trust and
convenience with loyalty toward the seller. Additionally, the
involvement of reputed financial institutions also makes
retailers trustworthy to their customers, further increasing
Retailer financing thus offers several benefits to buyers as
well as sellers. Businesses can extend credit to customers
without affecting their working capital. It also helps them
clear the inventory faster, increase sales, improve customer
loyalty, and expand the business. Moreover, the responsibility
of payment collection lies with the financing institution,
making it more attractive for a retailer. Retailer finance is
thus a lucrative financing option for customers and secure
funding for retailers.
Retailer financing allows uninterrupted cash flow
and does not impact the working capital
significantly. It also increases sales and
improves customer loyalty. These benefits are
invaluable for startups and small businesses to
develop and grow their business.
While shopping online, it is common for customers
to add products to their carts and not purchase
them. Retailer financing allows them to directly
purchase products right when they add these to the
cart. They can then pay for their shopping later.
Early purchase means early delivery without having
to wait for funds.
Retailer financing options like Buy Now Pay Later
and No-Cost EMI are common offers in almost all
major online retailers. Buyers get the option to
avail this mode of financing right during
checkout, making it a convenient and hassle-free
Financial institutions usually charge retailers a
nominal fee to provide retailer finance benefits.
This charge is usually a percentage of each
transaction involving the financing.