Retailer Guide: Getting started with interest free credit

The constantly changing dynamics and competitiveness of the retail market have had a significant impact on consumer shopping habits and behaviour, especially throughout the pandemic. There are many different factors that influence someone to make a purchase, including price, product range, availability, quality and customer service or reviews.

But providing easier ways to pay is fast becoming a significant factor in purchasing decisions. That’s where interest free credit (IFC) comes in.

Offering interest free credit can be a great way to:

  • Boost sales
  • Increase your average basket value – by allowing people to spread the cost of their purchases over several months at no additional cost.
  • Keep customers happy – creating a memorable brand experience, nurturing repeat sales

 

What is interest free credit (or 0% finance)?

Customers spread the cost of goods or services over an agreed period, with no extra interest or fees.

It allows consumers to purchase bigger ticket items without having to break the bank, such as appliances, sofas and furniture, or when something vital at home breaks, like their boiler or even their car.

As a retailer you’ll receive the full payment upfront, and the customer will receive their purchase straight away.

 

How does it work?

When a customer goes to make a purchase, whether it’s in store, online or over the phone, they’ll be given the option to spread the cost of their purchase over several months using interest free credit, with no hidden fees or extra interest to pay – they’ll pay the same price as the item is listed for sale, just over a longer period.

 

How quickly are application decisions made?

They’ll need to have an affordability check and a decision is returned in real time, so your customer won’t be kept waiting.

Customers are either approved or denied by the finance lender based on their credit history, income and affordability.

At DivideBuy, we don’t rely on third-party lenders, we take on all the fraud and credit risk. This also means our acceptance rates are higher as we base our decision on their current circumstances not their past credit history and offer several choices, including using a guarantor, if needs be.

The customer can then enjoy their latest purchase and be happy in the knowledge they’re in control of their finances.

 

What about if they cancel or we need to refund them?

If they aren’t enjoying their latest purchase, or there’s an issue with the product and you need to refund the customer, this is really easy too. You can log in to your retailer portal (Magento, Shopify or WooCommerce), process the refund in a couple of steps and we’ll be notified to refund the customer.

 

What are the benefits to retailers?

There are multiple benefits of providing IFC, especially when you’re selling high-cost items. Interest free credit is designed to convert ‘browsers’ from simply looking at your items into ‘customers’ who actually buy your items.

  • Higher order values (and increased website cart sizes)

By allowing customers to spread the cost of their purchases, it often means they’ll spend more overall. It also gives you the opportunity to market ‘bundle deals’ to increase attraction to customers and their transaction value.

  • Maximises sales conversions

By offering an interest free payment plan you’re giving consumers more choice, allowing them to spread the cost and be savvy with how they spend and save their money. For example, Simba Sleep implemented our interest-free credit solution and saw +25% increase in orders!

  • USP against competitors

If your competitors aren’t offering alternative finance options, they’re limiting the customers they’ll appeal to. Many consumers will only make large purchases from retailers that offer interest free credit. Make sure you’re ahead of your competitors by giving consumers what they want.

  • Consumer loyalty

Once a customer has bought something from you, they’re likely to return for future purchases knowing that they’ve already been approved for your payment plan. And if they had a pleasant experience with good customer service, you may have gained a customer for life.

  • Consumer trust

Compared to ‘buy now, pay later’ solutions, interest free credit offers clear guidance on what a customer will pay each month, with no fees and no interest to pay.

 

What are the drawbacks?

It might not be right for every business, especially if you choose to do it independently and not work with a third-party provider.

  • Impact on cash flow

If you don’t work with a third-party provider, you’ll see an adverse impact on your cash flow at the beginning whilst you wait for the future payments from your customers. You’ll have to weigh up whether you can afford to wait for payments to come through or not.

  • Extra internal resource

If you are going it alone, you’ll need to track and follow up on customer payments, as well as the added paperwork and legalities involved. You might be able to spend your own time doing this, or you may need to consider hiring an extra employee.

 

What criteria do retailers need to meet to offer interest free credit?

Different providers have different requirements, so it’s always best to do your homework first.

When signing new retail partners, we stipulate they must:

  • Be VAT Registered
  • Are based in the UK
  • Have a minimum of 12 months trading history
  • An annual turnover of £500k+

However, there is some flexibility in these terms so it’s wise to talk to one of our team if you aren’t quite hitting these numbers yet.

 

Do I need to be FCA regulated to offer it?

If you want to offer interest free credit directly, then you may need to be approved by the Financial Conduct Authority (FCA) and may also be required to meet certain criteria stipulated by the credit lender. This process can be time and resource consuming.

But there is another way…

Retailers offering ‘instalment credit agreements’, such as the ones we provide, don’t need FCA authorisation. This is because these credit agreements are for a fixed amount, used to finance specific goods or services and are repayable in 12 months or under in less than 12 instalments.

Using this type of interest free credit plan speeds up the process significantly and means you can be offering interest free credit to your customers in a matter of days.

Working with a third-party provider means they’re responsible for the credit checks, collecting customer payments and the legalities surrounding this, saving your retail business time and money.

DivideBuy itself, under our registered company name, Rematch Credit Limited, is authorised by the FCA, but there is no need for our retail partners to apply for FCA approval.

 

How do I set up interest free credit for my store?

Each provider works slightly differently, but at DivideBuy we’re with you every step of the way. You’ll have a dedicated Success Team who will answer any and all of the questions you have, they’ll help you decide on the best solution for your store based on your objectives, and you’ll be up and running with your bespoke solution within days.

Integrating the interest free checkout option into your website is really easy, it’s simply a case of providing us with your website credentials and we’ll install the plugin on to the cart of your Shopify/Magento/WooCommerce or other type of ecommerce platform, complete a test order and then you’re ready to go live. Alternatively, you can complete a self-installation, but we’ll still be on hand ready to assist if you need us.

If you sell your products or services over the phone or in store, we can integrate our credit checkout there too. You can use our platform to set up the order for the customer and they’ll be sent an email to complete the affordability check and finalise their purchase.

With interest free credit, there’s no APR or hidden charges for you to get your head around, repayments are calculated by dividing the total purchase cost over the number of instalments and our approvals process is managed automatically – so there’s literally nothing you need to do once it’s installed.

 

Should I consider offering interest free credit to my customers?

Now you’re aware of the basics of providing interest free credit, including the benefits and pitfalls to be aware of, it’s up to you to decide whether offering interest free credit is right for you and your customers.

For most retailers it’s a no brainer, you get more conversions and bigger sales, plus your customers are happy.

If you’re still not sure, talk to us – we’d be more than happy to delve into the details with you.

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