Aaron Allred, Founder & CEO, Simple Finance
We have conversations with hundreds of retailers every month, and one topic emerges in nearly every conversation: the number of customers leaving a store empty-handed because they didn’t qualify for credit.
The retail business—a nearly $5 trillion per year market in the U.S., reports the Census Bureau—is riddled with opportunity costs. These are sales you might have booked if you’d done something differently, like hired better sales help, worked harder on competitive pricing, or done a better job of merchandising. Here’s an opportunity many merchants miss: offering alternative payment options.
Most consumers who walk into a store have credit of some kind. Our data show that 90%-95% of them do. But our information also reveals that nearly half of those customers (45%) have credit that’s rated subprime. That’s a broad category, which includes people with a poor record of repayment, some unfortunate circumstances, or no credit history at all. They’re still potential buyers.
As retailers, you just have to learn how to appeal to them and find their comfort level. Credit is a sensitive subject for many people, most of whom don’t enjoy mentioning their low FICO scores. That means broaching the subject without embarrassing anyone. It may also require offering no-credit alternatives to potential buyers with plans like lease-to-own options.
Here are five ways to attract more customers and boost your sales using alternative financing:
1. Advertise your options. Make clear in all of your marketing that you offer “no credit needed” financing. Some mention of that option should appear in your print and digital ads, your website, and your point-of-sale material in the store. Don’t leave any customer in the dark. Customers will often hesitate to ask about “no credit needed” if they don’t see it offered.
2. Explain the easy access to credit. Consumers with bad credit histories can still qualify. In most cases, all they need is a job (and a 90-day record of employment), a bank account (90 days old or more) that features direct deposit of at least $1,000 a month, and a valid ID (a driver’s license or an ITIN card).
3. Show how it can build credit history. “No-credit-needed” plans like a lease-to-own option lets people build payment history—and allows those without any credit history to begin to establish one.
4. Point out the advantages of cheap capital. Paying off a plan within 90 or 100 days oftentimes incurs just a $10 fee. That’s less than most people who are a great credit risk (i.e., a FICO score of 850) pay for any kind of credit. And it’s leagues better than the 22% credit cards charge annually, to say nothing of payday loans, which can shoot into triple-digit interest rates. Our research tells us that 35% of buyers who use no-credit financing pay it off within 90 days.
5. Enable Customers to augment their purchasing power. Armed with cash but damaged or no credit, many customers walk into a store with a particular item or purchase in mind. Lots of them walk right out again because they can’t figure out how to make that purchase work. You can help them by explaining how they can finance that nicer mattress or set of radials, partly with cash, partly with some kind of credit option.
Offering payment options to people without credit is an easy way to boost sales and to upsell into more expensive items.
It’s hard enough to get people into your store. Don’t give them an excuse to leave empty-handed.
About the Author
Aaron Allred is the founder and CEO of Simple Finance, a Salt Lake City, Utah, financial technology company offering alternative consumer lending solutions.