Point of Sale Financing

What is point of sale financing?

Point of sale financing covers a wide range of financing options when a consumer is purchasing products or services. Sometimes these products and services could cost thousands of dollars and it is difficult to pay for the entire amount. Point of sale financing makes it easy for consumers to pay for products and services over time.

Who offers point of sale financing?

Point of sale financing could be offered by a variety of entities. For example, the company that delivered the product and service can offer point of sale financing. Sometimes they are called in house financing. 

It is easier for those companies that provide services with financing options. Most of the cost to render services are payroll expenses. In essence, there aren’t many third parties involved and need to be paid off. These service oriented companies can afford to get paid over a short period of time.

If these service oriented companies also need to pay off their vendors such as solar installers, there is a hard cost involved and getting paid over time may not be a financially sound decision. Sometimes, these service oriented companies asks for a down payment before the installment payment kicks in to cover some of their hard cost.

If your company sells products, a third party financing company may need to be involved. The manufacturers of these products probably can’t wait to be paid over time and they need everything up front like a regular transaction. A third party financing company will pay the manufacturers and receive installment payments from their consumer. The credit risk is then shifted from the retailer and from the manufacturer to the third party lender.

Most of the time, for the third party lender to lessen their risk, they will pay the retailer and the manufacturers at a discount. For example, if a pair of shoes is listed as $200 MSRP, the third party may pay the retailer and the retailer’s manufacturer $180 (10% discount from $200) to hedge the risk of credit loss from the consumer.

How does point of sale financing work?

There are two primary ways point of sale financing is offered to the masses. First, a sales consultation may take place first. A solar installation sale representative may walk you through all the ins and outs of getting solar panels installed. A medical professional may talk you through certain treatment options for an elective surgery. 

At the end of these consultations, a price for the service is discussed and various financing options are presented to the consumer. At this point, the consumer can fill out financing paperwork or the service provider might point the consumer to an online portal where the consumer can fill out a few pieces of information and get pre-qualified to finance the aforementioned services.

The other common way a point of sale financing option is offered is usually at the checkout stage of a purchase flow. When a consumer is ready to pay for the product and services, the last bit of friction or reservation is the total price at check out. 

To lessen the sticker shock or anxiety of making a large purchase, the company may offer a financing option (e.g. pay over time) as one of the check out options. Usually the financing option gives the buyer the ability to pay over time and makes it easier for the client to make the final buying decision.

Point of Sale financing - digital onboarding and originations process

A full digital onboarding application may be used by the end user to take themselves through the process or an agent might be entering the information on behalf of the consumer in an office setting or a home visit.

The end user will get pre approved after a credit pull and or income verification is performed. The end user might get multiple offers from multiple lenders if the online originations platform is connected to multiple financial services APIs.

If the broker is using the platform, they can send the offers to the end user’s email address and have them review the offer and accept the offer. 

If the end user is navigating the offers themselves, they can review and sign all in one sitting.

Once the offer is accepted by the end user, the digital onboarding process will send a signal via API to a loan booking platform or a loan management system. The loan management system can then begin to disburse the funds to the merchant and prepare a repayment plan for the end user to begin repaying the loan.

LendAPI loan origination system

LendAPI’s product builder can get you started right away. You can use the product builder to build a number of pages with fields you need to collect enough information and call third party data providers to make an informed decision.

Check out our LOS tool sets at app.lendapi.com/signup or visit www.lendapi.com for more information.