Have questions about financing? You’re not alone. While financing has become more prevalent in the last few months, it has also sparked questions among contractors who are new to the subject.
Here are the top 3 questions contractors ask about financing.
Why am I paying a dealer fee to the lenders?
When you offer financing to a homeowner and accept payment from the lender for the full cost of the job (minus dealer fees), you are receiving all of your money upon completion of the job, and are placing the responsibility of collecting monthly payments completely on the lender.
As long as you do quality work and are not engaged in fraudulent activity, there’s usually no recourse to you as a company if the homeowner misses a payment or simply stops paying altogether.
That’s a lot of risk for a lender to take on. Dealer fees exist to give lenders an incentive to shoulder that risk.
How do I pass along the cost of financing to my customers?
First, it is against the terms and conditions of your agreement with your lending partner to charge a higher price when customers ask for financing.
It is normal, and ethical, for you to charge homeowners based on your costs. The cost to get paid i.e. credit card fees, bank fees, or financing contractor fees, is an operating expense and you are allowed to include all operating expenses into the price you charge your customers.
What most contractors do is simple: They estimate what their costs to do a job would be, determine their desired profit margin, and bid a price to the customer.
When it comes to financing and credit card costs (the cost of payments), most contractors estimate the mix of financing, card, and check transactions they’ll take and then account for those costs in their pricing. For most contractors, assuming a 3.5% markup for the cost of payments will more than cover their cost of payments.
To use simple math, this takes a $10,000 job and moves it up to $10,350. Not a huge leap and will not price you out of the market.
If you’d like to see the math for your business or get a more specific estimate based on your mix, contact us and we can work through your numbers together.
What is the best way to present financing when talking to customers?
The best way to use financing in your business is to make it an option for every customer on every sale.
Talking to your customers during your price proposal should not be the first time that customers have heard that you offer financing options. Your staff answering phones, your marketing material, and your website should all mention financing so that by the time you get to your customer’s house, they have already heard that you offer financing two or three times.
Then, when you are presenting the price for the job, present it like this: “Mr. Homeowner, this job is going to be $7,000 OR $95 dollars per month. Which option works best for you?”
Many homeowners will already be prepared to discuss financing options, and the ones that aren’t will be intrigued by the monthly payment as opposed to a one time, large payment.
Offering financing in that way gives the customer two ways to say yes to you (one for the overall job price and one for monthly payments), and will result in you securing more jobs.
If you’d like to learn more about how Payzer can help you offer financing and close more jobs, contact us today!