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Customer Finance for Trades Businesses: An Intro

Cashflow is vital vital to everyone, not just for trades businesses. Customer finance is all about easing cashflow problems and in turn, reducing the barrier to purchase. It’s a way to let customers pay for goods of services in instalments, as opposed to paying up front. If you can offer flexibility like this to your customers, you make your trades services more affordable and open yourself up to more possible business. A recent Forrester study found that offering a credit payment option can result in a 17%  increase in incremental sales and a 15% increase in average order value.

Perhaps the best thing of all is that whilst the customer pay you over time, you get paid in full as soon as the work is complete. Fundamentally, it’s a very solid way to increase sales, impress customers and offer strong customer service without sacrificing your own cashflow.

Many trades and service businesses in industries such as electrical, plumbing, HVAC, cleaning and property management offer financing to their customers because it helps them in a variety of ways:

  • Simply, it makes your business look more professional and could help you stand out from competitors.
  • It removes barriers to purchase and makes it easier for your client to accept a quote
  • It helps you win more jobs, close bigger deals and it also makes it easier to upsell

Seem to good to be true? Let’s take a closer look at customer financing for field and service businesses.

Is customer financing right for my trade business?

Well, it’s worthy question because it isn’t for everyone. Read on to find out if it’s right for you.

Customer financing can help your business increase revenue if:

  • You offer services at a fairly high price point. If your business’ offering usually cost somewhere from £500 and above, offering customer financing options can certainly help reduce some price shock and bring larger purchases in reach for certain customers.
  • You want to differentiate yourself from your competitors through your customer service. Not every customer will have the cash required to pay for big jobs up front. By offering financing, you’re putting their wishes and your business within reach. Your prospective customers will appreciate the convenience and the flexibility. Especially if your competitors can’t offer the same level of service!
  • You have services or products that you want to try to up-sell. Upselling can help you increase the available revenue from any existing customers and jobs. If you have any kind of customer financing available, you’re going to make these higher-price items that little bit easier to sell.

If your trade or service business does not fit any of these criteria, you can still of course offer financing options to your customers. Especially, if you think that your customers would use the offering, of if you think it could help you win more sales.

What is customer financing, anyway?

To put it simply, customer financing is just a way to allow your potential customers to pay for a product or service over time, instead of upfront.

By offering this service, many trades business can secure more and bigger jobs. On the flip side, customers also get the service that they need, faster, and without making their own cashflow situation too strenuous.

What about fees?

Nothing in life comes for free, right? Especially the good stuff. So yeah, there are some costs to set up customer financing services:

  • Customers pay an interest fee on the financed amount, some finance partners may be able to offer 0% financing over 3 months, for example. 
  • The service provider (i.e. you and your business) often pays a fee of 3-6% for each transaction. This is just to keep the cost down for your customer.
  • Some customer finance providers also charge a monthly service fee but we’ll go into a little more detail on that later.

So, what are my options? 

There are pretty much two options for offering customer financing:

You fund the payment plan yourself. This means you’re taking everything into your own hands. This means you run credit checks, offer the financing and managing everything else such as contracts and payment collection, on your own. Not for the faint-hearted! This is, quite clearly, the riskier option. It comes with the legal responsibilities, since you are handling customer credit info. It’s also far more time consuming, especially if the customer doesn’t meet their payment deadlines. It is the cheaper option, however, you will be saving money at the expense of huge amounts of business hours.

Or, you use a customer financing partner. This is, in most cases, the smarter option for many small businesses. The partner s responsible for credit checks, making credit offers, collecting payments, and managing the legal risk. They run the entire operation on your behalf, but at a cost. When using a financing partner, the client pays the partner, and the partner pays you in full, up front. You don’t have to waste time chasing clients down or suffer because of poor cash flow. When choosing a partner, you should look for ones that are friendly towards your customers. That could mean that they specialise in financing in homeowners or property owners. For example, some customer financing partners offer no late fees, no early repayment fees, or 0% financing over 3 months.

How do I offer this to my customers? 

Step 1. An obvious one: Tell them about it! Let your customers know financing is an option. You can include this info on your website or even directly on your estimates and quotes. You could send out a marketing email or create posts on social media to let previous customers know that their next bit of work with your business, could be made easier with customer financing. If your financing partner offers integrated financing, the customer can apply directly from within the quote. 

Step 2. Your customer for financing with your partner. The customer will need to apply for finance through your chosen partner. In typical circumstances, they’ll conduct a credit check to see if your prospective customer qualifies. Some partners will let the customer see their options beforehand, using what’s known as a soft credit pull, which won’t affect their credit score. They’ll do a hard pull when the customer decides to apply. Next, your financing partner will let the customer know if they were approved or denied. 

Step 3. Your work begins. If your customer is given the green light for finance and has agreed to all the payment terms and conditions, its your time to step up. You provide the service the customer ordered, in order to be paid.

Step 4. The customer pays over time, while you get paid up front and in full.

Once the work is complete, you get paid in full by the finance partner, and the customer starts paying their instalments. Your customer will continue to pay their required instalments to your financing partner until their debt is paid off. Easy!

How much will offering customer finance cost my trade business? 

Most trades and service businesses can expect to pay a 3-6% fee on every transaction. Some finance partners may also charge you a monthly fee of £50 or so, based on the number of transactions. Make sure to ask your partner for full payment terms and conditions before you agree and sign-up.

Before you go much further, you should take a moment to do some cost-benefit analysis, to make sure that customer finance manes sense for your field or trades business. This will help you better understand the fees and whether your business can recoup those costs through the extra business that you will generate. Here’s one way to do exactly that? 

  1. Calculate your current average invoice price. Use this as a benchmark to see if you can increase it by offering customer financing. 
  2. Add optional add-ons, or ‘good-better-best’ packages to your price estimates to see if customers are interested or if high prices are a barrier. 
  3. Ask your current customers if they’d be interested in customer financing for larger jobs. You can send a survey via an email survey, or simply ask customers when you quote jobs and track their answers in a CRM. 
  4. If you do offer upsells or premium packages, calculate how much bigger your average invoice price could be.

Once you spend time asking questions like these and find out more about where your customers stand on the topic of financing, you should have a better idea of whether it will work for your customers, and you business. If you can consistently win bigger jobs and increase sales, any fees associated with consumer financing may very well be worth it.

Customer Finance for Field and Trades Service Businesses: Summary

Some well put together customer financing options can make your business look more professional, you can improve your customer loyalty, and increase sales. But, perhaps best of all, you allow your customers to get the services they need, when they need them, brining in bigger and more ambitious work and services into reach. 

Take your time to understand and be sure of how it will work for your trades or service business by doing good research, talking to your customers and choosing the right finance partner. Check out this monstrous article by the team at the Entrepreneur Handbook, for an introduction to some of the U.K.’s many established consumer and asset finance companies. Good luck!

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