Should you offer financing? When it pays off, when it doesn't
Financing partnerships look like easy wins. Sometimes they are. Sometimes they're a slow margin leak. Here's how to tell which.
Most established service operators eventually face the financing question. A customer wants to do an $8,000 system replacement but can't (or won't) write the check. Financing partners — Synchrony, GreenSky, Wisetack, Affirm, others — offer to extend credit to the customer in exchange for a fee.
Sometimes this is a clear win. Sometimes it's a slow margin leak. Here's how to tell.
How service-business financing works
The basic structure:
- You sign up with a financing partner (often through your equipment supplier or directly with the financer)
- At the point of sale, the customer applies for credit through the financer
- The financer pays you the full quote amount (minus a fee) within a few days
- The customer pays the financer over 12-84 months at the financer's terms
The fee — what financers call the "merchant discount" — typically runs 5-15% of the quoted amount, depending on:
- Length of the financing term (longer term = higher fee)
- Promotional terms offered to the customer (0% interest "same as cash" for 12-24 months = highest fee, often 8-12%)
- Your industry (HVAC and replacement-grade work often gets better terms than smaller jobs)
- Volume (high-volume operators negotiate better rates)
The cases for offering it
Closes deals you'd otherwise lose. A customer who needs a $9,000 furnace replacement but only has $3,000 in available cash is a candidate for either financing or a cheaper repair (band-aid that fails again in 18 months). Financing converts the deal at quoted price; the alternative is a smaller-margin repair or a lost sale entirely.
Lifts average ticket size. Customers offered financing often choose higher-end options ("if I'm financing it anyway, might as well get the better unit"). Average ticket can lift 15-30% on financed jobs.
Aligns with how customers think. Many residential customers think in monthly payments, not lump sums. "$179/month" lands differently than "$8,000."
Cash flow improves. You get paid in full upfront from the financer, while the customer's repayment risk transfers to the financer. No 60-day AR aging.
The cases against
Margin compression. A 10% merchant discount on a $9,000 job is $900 of lost margin. If your gross margin on the install was $3,000 (33%), the financing fee just took 30% of your profit on that job.
Fee-driven mix shift to bigger projects. If you only finance projects above $3,000, you become biased toward upselling smaller jobs into bigger ones to qualify them for financing. Sometimes appropriate. Sometimes a slippery slope.
Customer-experience issues. Some financers have aggressive collections practices, opaque interest rate structures, or customer-service problems. When the customer has a bad experience with the financer, you sometimes get blamed.
Approval friction. Financing applications take 5-15 minutes at the kitchen table, and not all customers approve. Awkward when the customer is denied while the tech is standing there.
Sales-conversation distortion. Techs trained to sell financing often default to the financing pitch even when the customer would have paid cash. Each financed cash-customer is a 10% margin hit you didn't need to take.
Recommendations by business model
HVAC, plumbing, electrical with regular install/replacement work over $5,000: Financing usually makes sense. The deals you save more than offset the fee on deals that would have happened anyway. Pick a financer with strong customer reviews and clear interest disclosures.
Service-only operators (mostly repairs, average ticket under $1,500): Skip financing for most jobs. The fee math doesn't work, and most customers can pay sub-$1,500 jobs by card without financing. Reserve financing for the rare large-ticket exception.
Roofing, large-scale exterior, or specialty contractors with $10,000+ projects: Financing is essentially required. Most customers don't pay 5-figure project bills out of cash; the close rate without financing is meaningfully lower.
Maintenance plan / recurring service operators: Financing is irrelevant — recurring payments are usually small enough to not need it. Focus on payment cards and ACH instead.
Choosing a partner
Once you've decided to offer financing, partner selection matters more than most operators realize.
Check customer reviews of the financer specifically. Yelp, Google, BBB. Some financers consistently generate complaints (collections aggression, unclear interest disclosures, billing errors); avoid those even if their merchant rates are competitive.
Understand the rate structure. Some financers offer a "0% APR for 12 months" promo that reverts to 25%+ APR if the customer doesn't pay in full by month 12. Customers blame you for the surprise rate hike.
Check approval rates. Lower-tier credit-quality financers approve more applications but charge customers higher rates. Higher-tier financers approve fewer but at better customer terms. Pick based on what your customer base looks like.
Understand the dispute process. What happens if a customer claims work wasn't completed as promised? Some financers chargeback aggressively; others mediate. The chargeback risk should be priced into your decision.
Compare merchant discount rates. Don't accept the first offer. 5-7% is achievable for established operators with HVAC/install volume. Anyone quoting 12-15% is high.
When to revisit the decision
Annually, look at what percentage of revenue is financed and what the financing fees added up to. Compare against the close rate impact (estimate how many financed deals would have been won/lost without financing).
When merchant discount changes, by either you or the financer.
When new financers enter the market, particularly fintech-backed entrants who often launch with aggressive merchant rates.
If customer complaints about the financer start surfacing. Reputation risk to your business is real.
Implementation tips
Train techs to offer financing as one option, not the default. "We have financing available if that helps; what works best for you?" leaves the customer choice. The default-to-financing pitch creates margin leak.
Make sure the integration is smooth. Customers should be able to apply on their phone, not on the tech's tablet (better for privacy and fraud reasons). Approval should come back within minutes.
Be transparent in your quote. Show both cash and financed prices side by side. Customers often pick cash when shown the math.
Disclose the rate. "0% for 12 months, then 25.99% APR if not paid in full" should be communicated at booking, not after the contract is signed. You don't want post-sale surprises eroding trust.
For more on the broader pricing strategy and how financing fits in, our playbook on pricing for profit covers the math and the methodology.