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Taking the Fear Out of Financing

Every one of your customers knows how much he or she pays per month for cable. Don’t believe me, ask them? The answer is given in less than two seconds.

Now, ask those same customers how much they pay for cable on an annual basis or how much they’ll drop on cable over a 10-year period. That answer takes significantly more thought? Why? Because cable is exclusively sold on its monthly cost.

“The cable guy doesn’t sell cable for $1,800 a year because if he did, he’d never close a sale,” said Doug Little, president and co-founder, Payzer, an all-in-one financial tool designed to help contractors grow their businesses. “If a salesman were to approach a customer and say, ‘We’re offering you 10 years of cable television for $18,000,’ he’d be rejected on the spot. No one would ever buy cable. So, the logical question is, why do HVACR contractors choose to sell comfort for $10,000 when they can also offer it for less than $100 a month?”

Financing Is Not a Dirty Word

Seven years ago, Little co-founded Payzer and over that time, he’s discovered that HVACR contractors tend to view financing as a faux pas.

“In the trades, financing is often viewed as a dirty word. It’s the ‘F’ word,” Little said. “It’s perceived very negatively by buyers and sellers; therefore, we encourage contractors to avoid the word altogether. HVAC contractors sell home comfort, so instead of financing, the preferred terms are ‘monthly payments’ or ‘payment options.’ The goal is to break down the barriers that accompany such a large transaction. If the customer approaches the sales conversation with any preconceived disposition to the overall cost, it’s going to be a difficult sale.”

Every customer is different. Some have plenty of money in the bank, while others prefer to pay for large ticket items over the span of several years. Offering financing as an option allows customers to select the payment path that works best for them.

“If you show up and there is a Mercedes in the driveway, don’t immediately think the homeowner is rich,” Little said. “You don’t know his or her financial situation. The best approach is to give the customer options and let him decide how he wants to handle the bill.”

The Three Paths to Payment

Ron Hall, a sales manager for a residential heating and cooling contractor in the greater Philadelphia area said his company financed 153 projects in 2018.

“We offer financing on every lead; it’s part of our normal sales conversation,” said Hall. “We offer three paths — credit card check, and financing — before we ever offer a price.”

While 153 projects is a significant number of jobs, Hall said that accounted for only 17 percent of the company’s contracts.

“More than 80 percent of our customers were willing and able to for their projects without financing,” he said. “Therefore, you don’t want to push financing options too hard, because you don’t want to offend anyone who’s planning to pay cash. Also, savvy customers recognize that financing carries heavy dealer fees — anywhere from 2-3 percent on a short-term loan to 15 percent on a 10-year loan — so they’ll request a discount when paying cash.”

Boosting the Bottom Line

Chris Klijanowicz, CFO for a heating and air conditioning company located along Virginia’s east coast, said his company began offering financing about nine years ago based on customer demand.

“We were looking for a way to boost sales and offering financing did just that,” he said. “Last year, we financed about 30 percent of our projects. Not everyone has $10,000 laying around to spend on a furnace or air conditioner, and financing allows customers to pay for such a large investment over time. It’s been extremely beneficial for us and our customers.”

Klijanowicz said customers who finance are more likely to consider accessories and system add-ons.

“Customers almost feel relieved to be paying $99 a month; they feel their budgets can handle that amount,” he said. “In our experience, once we sell the accessories, upgrades, and add-ons, that $99 monthly payment increases to $130 or so, which is still an acceptable amount to homeowners.”

Opportunity in Options

Surprisingly, many contractors still do not offer financing, which, according to Little, tends to lower their profit ceilings.

“There is a hangover in the trades that financing is difficult,” he said. “Contractors are fearful that they won’t understand the numbers, won’t be able to do the math, and won’t be able to comprehend the interest rates and the equations that come with it. Programs like Payzer make financing simple. We can offer loan approval on a mobile app in less than 30 seconds.”

Some contractors are fearful that customers will fail to qualify for the terms of a loan, so they simply choose not to offer financing at all.

“We have several second-look lenders that will consider offering loans to homeowners with FICA scores of 550 or less,” he said. “We have a 45 percent success rate when recommending a customer to a second-look lender.”

Klijanowicz said his company always strives to offer assistance to those who are unable to obtain a loan.

“We’ll work with some fairly low credit scores,” he said. “If customers just do not qualify for a loan, we’ll offer repair options or seek other avenues to help them achieve their comfort goals.”

While many HVACR contractors may offer some form of financing, Hall doesn’t believe they’re offering it systematically with intention nor do they know how to run the numbers to ensure they’re profiting off the process.

“Contractors should know what their average sales numbers are,” Hall said. “They should look at their total dollars financed and total gross dollars sold and create an average. That average should be projected on all transactions to cover costs, regardless if a consumer purchases with cash or through financing.”

With many economists predicting an economic slowdown, the continued threat of steel and aluminum tariffs, and efficiency requirements increasing the baseline costs of HVACR equipment, financing will continue to play an increasingly important role in the success of HVACR customers and their customers.

“I can’t imagine any reason why a contractor shouldn’t offer financing,” Klijanowicz said. “There are plenty of plans out there with low enough costs and dealer fees that everyone should offer it in some form. Sure, there are some fees involved, but in a very short period of time, it’ll pay for itself.”