Credit continues to grow more common than cash as the preferred payment method for today’s consumers. Low interest rates almost make it more practical to borrow rather than save for a purchase. Several speakers at the recent EGIA Lead conference discussed ways providing financing helps HVAC contractors grow their sales and build long-term relationships with clients.

Most sales remain paid for by cash, said Dave Segur, national sales manager for GreenSky Financing. For more expensive purchases, however, credit sales make up about half. Contractor-arranged financing makes up about a quarter of those credit transactions.

Consumers will spend more if they can finance a purchase, Segur said. People paying with cash spend about $3,300 on a project. That almost doubles to $6,500 when using contractor-arranged financing.

Consumers are making more major HVAC purchases using credit, Segur said. Equipment is the fastest growing segment of home improvement financing. Some HVAC contractors still resist offering financing because they fear offending the customer by suggesting they lack the ability to pay. Segur said the opposite is true.

“Consumers expect to have financing offered to them,” he said. “They are looking for easy ways to pay for their projects. People love to use other people’s money.”


Consumers Have Other Uses for Their Cash

James Morris, director of training for EnerBank USA, shared data from a survey his company conducted of 600 consumers. A quarter of those were existing EnerBank customers. Of the 450 non-EnerBank customers, 300 planned a home renovation project in the next 112 months, while 150 had completed one in the past 12 months.

Morris said half of consumers have an idea of how much a project should cost. Most of the time, that number is wrong, Morris said. They base the projected cost on outdated or inaccurate information.

Only a third of consumers know how they are going to pay for a project. This creates an opportunity for HVAC contractors. A full 60% opted for contractor-arranged financing because it was convenient and flexible, Morris said.

Consumers who finance their HVAC purchases fall into two categories: those who have to and those who want to. Both come down to cash flow.

Some consumers can pay cash, but they prefer to spread out payments because they have other opportunities for that cash. These consumers are especially interested in no-interest or same-as-cash financing.

Even if a consumers has a plan for how to finance a project, it pays to provide options, Morris said. Sometimes the contractor-arranged financing proves more attractive. Some consumers may prefer no-interest financing, while others prefer low-interest financing with longer terms.


Arrange Financing for a Consumer, Create a Customer for Life

In the overall population, 38% of consumers have a credit score between 750 and 850. This makes them prime consumers, meaning they have a lower risk of default. Homeowners make up 75% of prime consumers, creating plenty of opportunity for HVAC contractors to arrange credit for the highest credit category.

Another 41% of the population has a credit score between 600 and 749. These consumers present more credit risk and pay a higher interest rate for financing as a result. HVAC contractors shouldn’t assume all consumers in well-to-do areas have high credit scores, said Wright Kimbro, HVAC residential financing manager for Foundation Finance Co.

“Bad credit is indiscriminate against the population of the United States of America,” Kimbro said.

Dealing with lower-credit consumers requires more work, but it also offers opportunities. Decisions on financing prime consumers mostly come down to FICO scores and income. Non-prime consumers may require extra documentation, creating more work for the HVAC contractor.

This extra work pays off in more sales, Kimbro said. An experienced non-prime creditor approves more applications than many prime finance companies. Their business models are designed to profit from taking on extra risk.

“It’s pulling them from the trash heap and putting them into your bank account,” he said.

More than a single sale, providing financing to a lower-credit consumer creates a customer for life, Kimbro said. They are grateful for the HVAC contractor solving their problem and will use that contractor again down the road. They will also tell other people about the contractor.

“What a customer wants to hear is, ‘Yes,’” Kimbro said.


HVAC Contractors Need To Incorporate Financing into Sales Process

Financing these consumers means understanding the importance of monthly payments. The payment needs to fit into their budgets despite the higher interest rate. This means working with terms.

Spreading payments over a longer period of time makes even a more expensive project manageable, Segur said. A $5,000 project financed at 9.99% over 96 months is a monthly payment of $76. A $7,500 project financed at the same rate, but with payments spread over 144 months, comes with a monthly payment of $89. That’s only a difference of $13 a month.

Offering financing to all customers can increases closures by a third and total sales dollars by almost 50%, Segur said. Different finance companies have different areas of focus, so HVAC contractors should work with a few.

Many HVAC contractors miss out on sales because they fail to present finance options to consumers. Kimbro said consumers, especially those with lower credit scores, are often hesitant to ask about financing. That’s why an HVAC contractor need to get the sales team to buy into financing.

HVAC contractors also need to promote that they offer financing, Segur said. It needs to play a part in all of the firm’s marketing and presented during each sale.

“Your best way to sell finance is to make it part of every single thing that you do,” Segur said.