Consumer financing plays an important role throughout the indoor comfort industry, but it is rare to find a plumbing service contractor who offers payment plans for major purchases.

There appears to be three primary reasons why plumbers haven't adopted consumer financing tools for their businesses; we're going to take a look at these issues this month. However, just because we're focusing on plumbing contractors doesn't mean there isn't some good advice for the indoor comfort contractor as well.

Low Average Invoices

With limited savings accounts, many homeowners don't have enough ready cash to replace a big ticket item like a boiler or condenser, so indoor comfort contractors understand how important financing can be to their replacement sales. At first glance, plumbing invoices are usually too low to meet the minimum requirements for a financing plan. But with financing available, plumbers can offer much more service than simply repairing a flush valve.

Although a single toilet may not qualify for financing, who's to say that a customer won't benefit from two new toilets and a water heater? Or, instead of just repairing a water heater, perhaps an energy-saving tankless or solar-assisted model is a better choice.

These higher levels of service become much more palatable when broken into monthly payments.

In other words, the historically lower average sale for plumbers can be increased dramatically with the help of consumer financing. Don't underestimate the effect that larger invoices will have on your bottom line. A contractor performing a financed job may spend a day or more taking care of all the work needed at one location, while the contractor who performs small repairs at various locations will waste time and money riding around town.

More significantly, spending all day at one location yields a considerable savings in the marketing budget. Using a very conservative $50 advertising cost per sold job, it's not difficult to see that a single job sold at $1,500 with a marketing cost of $50 will be more profitable than five $300 jobs with a total marketing cost of $250. The more it costs you to land a customer, the more drastic the difference.

Understanding The Basics

To get started, you first should enroll as a merchant with the finance company (see below). Then, as part of your sales presentation, make your customer aware that you offer financing. Don't be afraid to offer package deals -- “We can repair this toilet for $XX or replace every toilet in your home with our Premium Performer for less than you spend eating out each month.”

After performing the service and properly filing the paperwork, the finance company will deposit the financed amount, less discounts, if any, directly into your bank account.

Now, let's delve a little deeper into the process.

  • Enroll in a program -- All finance companies require that the contractor enroll in their program. Filling out an enrollment form for your company is similar to filling out a credit application. The finance company wants to know that you're an upstanding contractor and that you'll hold up your end of the bargain. The finance company also needs bank account information so they can automatically deposit funds when transactions are completed.

  • Financing the financing -- Finance companies use several methods to cover their risk and earn a profit. If your customer qualifies for revolving credit, he or she will receive the lowest interest rate on a revolving line of credit, which means you pay no financing fees and your customer gets “better-than-credit-card” rates.

  • High-risk “paper” -- You may have heard the terms “C” or “D” paper. This is finance industry lingo for higher-risk loans. The best rating is “A” and about the lowest rating to get funding is “D.” This is where “second look” finance companies come into play. A program that many Service Roundtable members use starts with General Electric Money Bank (GEMB) as the primary lender (for “A” paper).

    If a customer has a credit glitch that prevents GEMB from closing the deal, a secondary company comes into play. In our example, this would be Service Finance Co. (SFC). You would simply tell the GEMB agent to transfer the call to SFC for their approval process. If approved, SFC will charge a little more interest than GEMB and offer 60-month terms.

    This option gives your customer the opportunity to choose between a patch job and a complete replacement. For you, it means the difference between a sale and another ride down the road.

  • Discounts -- In order to profit from higher-risk transactions, the finance company will discount what they pay you for the invoice.

    For example, if your customer finances $1,500 (the minimum finance amount in our example) and the finance company requires a 5 percent discount, then the amount you would receive for the job would be $1,425 (5 percent x $1,500 = $75).

    In other words, it is important that your initial pricing be calculated to deliver the profits you desire, even if financing is part of the package.

    One way to make sure discounts don't cut into your profits is to simply raise your selling price as needed. This way, your discount is covered, plus you have the added option of offering your customer the discount if they pay cash on the spot. Everyone wins.

    Another way to offset the financing discount is to consider the added efficiency of the bigger ticket job. Which do you think would be more profitable; an all-day service call at a 5 percent discount or a day of hopping job to job? Again, everyone wins.

  • Down payments -- In some cases, the finance company may be willing to finance a customer but not for the full amount of the work. In these cases, simply get a down payment to make up the difference.

    Taming The Paperwork

    You've mastered the mechanics of using financing and raised your average invoice, but now you're faced with the paperwork. Chances are if you enjoy sales and service, you loathe paperwork. It's a necessary evil but fortunately, today's digital world is making it easier.

    Once you've called in the credit application, all the necessary forms will be e-mailed to you, ready for signatures. (This is part of the GEMB program. Other companies may have different procedures.)

    To expedite the process, consider having a runner deliver the documents while your service person is still on site. The size of the job would normally be worth this little extra effort. Keep in mind that some work may require a three-day waiting period before you begin. Check with your finance company about this requirement.

    After completing the work, you'll return all the signed documents in order to have your payment electronically transferred into your bank account. Yes, filling out the paperwork can be a drag, but is it as bad as fighting traffic to the next small-ticket or no-sale job?

    Good customer service includes offering options to your customers. Consumer financing allows your customers to choose your best service options while boosting your sales and productivity. With financing in place, your customer gets a permanent solution rather than a quick fix. You get a bigger sale and better efficiency. Everyone wins.

    Note: To see enrollment forms or to learn more specifics about financing options, download “Financing 101” from the freebies section of

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