Consumer Finance..?

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JohnWick123

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May 1, 2021
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Hey, I want to add consumer finance to my website and allow customers to pay more freely, do you have any idea on how I should go about this?

I’ve checked on google and it says I need to hire a finance company but I don’t understand why?
 
Joined
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14,553
Please explain what you mean by 'consumer finance' ? Do you mean that they can make installment payments instead of one lump sum? Like how you buy a car? Then you need to make decisions based on their credit history, how much interest you charge on top, how many months can they spread the payment over, etc. Then you also have to make arrangements with banks so that your company shows up as a possible payment destination so that that person can pay you with online banking.
 

JohnWick123

Thread Starter
Joined
May 1, 2021
Messages
18
Consumer financing is when a business offers financing to their customers with help from a professional finance company. This allows the consumer to pay for a good or service they couldn't pay for up front in cash or credit card. So yes, basically paying in instalments

"If you want to provide your customers with finance packages, you can choose either to administer the loans yourself or to contract a third party financing firm to run them on your behalf. Before you start, however, it's important to understand that consumer credit is a highly regulated practice." - some guy on Google

What's the benefits of having a 3rd party managing the payments? And what is the cost of it?
 

Xsage

Dave
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Jan 8, 2016
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342
From my understanding, if you have a 3rd party handle the installed payments that means you as the supplier get the full payment up front. The buyer then has to pay off their debt with the 3rd party under their own terms. This means that if they fail to keep up payments or something or suddenly decide they don't want to pay you after they have recieved the product, you don't have to deal with all of the legal stuff and possible court hearing and repo stuff that could ensue. You also don't need to write up a bunch of legally watertight agreements that are compliant with all of the legislation and requirements from your countries financial regulator. In fact, if memory serves, providing some kind of "consumer finance" service or loan service is heavily regulated - in europe at least under the European Banking Authority and subsiquent member state finance regulators. It would mean you would have to apply to your financial regulator and undergo a 6 month review of business plans, policies, legal documents etc to get approved, then you have your monthly, quarterly, biannual and annual reports to the financial regulator that need to be completed detailing all of the transfers, fraud, security etc of the regulated activity you are engaging in.

Say you manage all of that, you might think, now you are ready to go? well no not quite. As your list of customers on finance grow, you have less capital, because you have a lot of money tied up in loans waiting to be paid, so you might not have enough money to order your next shipment or products or to get new employees etc. You will likely also have to manually manage the monthly payments which can be a lot of hastle - from a UK perspective, that would mean you would need a direct debit management system to manage the instalments and dates and generate bulk payment files, you would need to be sponsored by one of the big banks to become a Bacs service user which has a bunch of requirements for you to meet. You would then also need to purchase Bacs approved software directly from your bank or another Bacs Approved Software Supplier or Bacs Approved Bureau to actually submit your payment files to the UK clearing system in order to collect the money. Then any unpaid direct debit or other bounces need to get downloaded from Bacs as reports and resubmitted into your DDMS to modify the next payment run.

This is just one of the reasons medium to large business have dedicated finance/legal departments.
 
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