Last editedJul 20222 min read
Modern POS financing developed as an alternative to credit cards and personal loans. It offers convenience, flexibility and cost-effectiveness to customers and merchants. In short, if you regularly sell or want to sell higher-value items, you should definitely look into POS financing. Here’s what you need to know.
What is POS financing?
POS financing is financing offered to consumers at some point before they make a purchase. This can be in the real world or online. The concept was around long before digital technology. In the old days, it was slow and cumbersome to implement, and also vulnerable to human error.
Modern POS financing is by contrast fast and easy to implement. It can be as simple as signing up for a ready-to-use solution. Leveraging technology also vastly reduces the potential for human error. If you wish, you can credit-check customers before offering POS financing, but you do not have to.
Legally, POS financing can be offered by firms that do not have explicit Financial Conduct Authority (FCA) authorisation (e.g. regular non-financial businesses). The financing has to meet certain conditions which are very straightforward. In fact, most merchants probably meet them anyway.
POS financing via other forms of credit
The two obvious competitors to POS financing are credit cards, and personal or business loans. Both still have their uses. However, there are several very good reasons why POS financing has taken over much of the territory they used to occupy.
With credit cards, the obvious reason is cost. This applies to customers and merchants. For customers, the interest rates charged on credit cards are often very high. For merchants, the fees for taking credit cards also tend to be very high; there’s also the cost of implementing the necessary infrastructure, plus training staff.
With loans, the approvals process has become vastly quicker. Even so, it still tends to be much longer and more complex than the approval process for POS financing. Loans also tend to be more expensive than POS financing, but more affordable than credit cards.
The specific benefit of POS financing
Many of the benefits of POS financing could be achieved by other means; for example, customers could pay by credit cards or get loans if they really wanted. The specific benefit of POS financing is that it ensures that you can offer finance to anyone you want. In other words, you don’t have to rely on customers being able and willing to use a credit card or to get a loan to afford higher-value purchases.
As a bonus, offering POS financing helps to reduce your costs. The merchant fees for POS financing tend to be much more attractive than the equivalent fees for taking credit card payments.
The practicalities of POS financing
There are two ways to implement POS financing. One is to team up with a specific POS financing provider such as Klarna. The other is to manage it yourself, using GoCardless. If you opt to use GoCardless, you can set up instalments via the GoCardless dashboard or via accounting software such as Xero.
In both cases, you need the customer to provide you with a mandate. By default, the sign-up process is online. You could provide customers with online access so they can sign up in your shop. Alternatively, you can register for a GoCardless Pro account. This gives you the option to use phone and paper mandates.
Once the customer signs up, create the payments for them. From the GoCardless dashboard, create a subscription to run for a specific number of billing cycles. From an accounting package, split an invoice into instalments; you could also create a recurring invoice for a certain number of payment cycles.
Then the payments are collected automatically. If you use invoicing software, they are also automatically reconciled, which saves time and effort for your customers and you.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.