While there are several benefits that a small business can gain from creating their own consumer finance program, there are also hidden risks that can arise during the process. As a merchant, you should be prepared for those risks in case they occur. A few common dangers and general demerits that might come with the incorporation of offering your own finance programs include: 

1.  Extra Account Receivables

You may believe that you are saving money by not hiring or partnering with a third party or outside financing company. However, have you considered the cost associated with bringing in more people to the accounts receivable team to offset the increase in accounts? Will your team be able to keep up on busy days and weekends to make sure payments are being received and accounted for? Odds are you will also need to recruit another person to take the responsibility of tracking to help follow up on the financing requirements of the business. These extra hands lead to an additional expense to the company. This can quickly exceed the cost of a financing partner that already has a business built to handle this situation. 

2.  Possibility for Bad Debts

Even the best credit card companies suffer losses. No matter how much you think you know your consumers, no one can predict financial roadblocks they may encounter. We shouldn’t disregard the fact that often, there is the possibility of failure to repay  a debt. To further this point, according to this Federal Reserve study 40% of adults would have trouble covering a $400 emergency with cash.  Even if repayment is not a complete failure, there are certainly situations where an account goes past due and action will be needed to correct it. 

If a consumer fails to pay, you are out that money. Therefore, it is a risk that might hinder the progress of other business operations in your organization. When it comes to bad debt, even some third parties can try in vain to get the money back. You need to be able to evaluate the risks and impact of expected losses before deciding to venture into retail financing for your consumers.

3.  Affects to Cash Flow

Some people choose to work without the intervention of third-party financing companies due to various reasons. Please keep in mind that if you decide to offer financing, your general cash flow has great potential to change.  At the beginning of the process, you may face a decrease in your cash flow, which is normal considering payments are not coming in immediately. Bringing in the right financing partner can bridge that gap by providing funding upfront through a purchasing option, and then taking responsibility of the future payments.  


Business owners should only offer financing options for their consumers after realizing that they will leverage the best repayment plan presented. Before you sign up with any financing organization, gauge the interest with your consumer base to see if they will be able to pay based on your existing plan. The above risks have the potential to ruin your business. If you are dedicated to providing your customers with financing options, consider approaching an expert to show you the best path to follow for your consumers and for your business.