Customer Financing for Contractors: How Point-of-Sale Lending Actually Works

The pattern is familiar to anyone who sells five-figure work for a living. The estimate is fair, the customer wants the problem fixed, and then the number lands and the conversation goes quiet. The customer does not say no. They say they need to think about it, and the job dies quietly in the follow-up queue. Customer-financing platforms exist to change the shape of that conversation: they turn one large number into a monthly payment a customer can accept on the spot, without the contractor becoming a lender.

This guide explains how point-of-sale financing actually works when you are the merchant. It covers the parties involved, the application flow, the main program models, who pays for what, and the compliance obligations you take on the day you start offering financing. It is written primarily for contractors and home-service companies, but the mechanics apply to dental offices, auto-service lanes, and retail counters as well. It is the hub of a ten-part series; the supporting pieces go deeper on individual platforms and specific decisions.

MerchantDash is editorially independent. We cover platforms whether or not they have referral programs, and coverage is never contingent on compensation.

You are not the lender, but you are not a bystander

Every point-of-sale financing arrangement has at least three parties, and confusion about who does what causes most of the downstream problems.

The customer borrows money, or in lease-to-own arrangements, leases goods. The lender or financing company extends the credit, sets the terms, handles disclosures, services the account, and absorbs the default risk. With many fintech platforms, the actual loans are originated by a partner bank named in the application disclosures, while the platform supplies the technology and merchant relationship. You, the merchant, present the option, host the application moment, complete the work, and get paid, typically upfront and typically minus a fee.

The important consequence: the customer's repayment is not your problem, but the presentation of the offer very much is. You are marketing someone else's credit product, and regulators treat that as your responsibility too. That framing runs through every section below.

The application flow, step by step

The mechanics vary by platform, but the skeleton is consistent enough to describe as one flow.

Two details deserve emphasis. First, soft-pull prequalification is a marketing claim platforms make about their own process; treat statements like "checking your options will not affect your credit score" as the platform's language to verify, not a fact of nature. Second, for staged work such as remodels, some programs fund in draws tied to progress, which changes your cash-flow math and paperwork.

The main program models

"Customer financing" is a category, not a product. The models below differ in who bears the cost and what the customer actually signs.

There is also a marketplace variant in which the merchant pays a subscription and customers are routed to unsecured personal-loan offers from a panel of lenders; Hearth has marketed a model along these lines to contractors. The structural point is the same: always identify what the customer signs and who bears the cost before comparing anything else. The fee mechanics piece works through the money side of this table in detail.

Who pays, and what the fee buys

Financing is never free. Capital has a cost, defaults happen, and someone operates the machinery. The only question is how the cost is distributed among customer interest, merchant fees, and pricing.

In customer-pays models, the borrower pays interest and your direct cost is low, but approvals skew toward stronger credit. In merchant-subsidized models, you buy a lower customer payment with a discount fee deducted from your funding, and that fee generally scales with how generous the promotion is. Platforms publish fee schedules and the figures change; verify current numbers on the platform's own pricing page or fee schedule rather than on any third-party site, including this one.

A fee is not automatically bad. If financing closes jobs that would otherwise die, the fee is a cost of sale like any other. The failure mode is adopting promos by default, without measuring whether they change close rates enough to pay for themselves.

Approval rates: the number that needs the most scrutiny

Every platform markets its approval rate, and no two platforms compute it the same way. The denominator might be everyone who starts an application, everyone who completes one, or everyone who is prequalified. The numerator might include approvals the customer never accepted, or lease offers counted alongside loans. A high headline number can coexist with many of your customers walking away.

Single-lender programs run one credit box: clean, predictable, and blind to everyone outside it. Waterfall platforms route a declined application to the next lender down the spectrum, which raises the share of customers who get some offer, at the cost of wider variation in what those offers look like and more complexity at the counter. The tradeoffs are the subject of the waterfall versus single-lender piece; the short version is that you should choose based on the credit profile of your actual customers, not on the biggest advertised percentage.

Workflow fit matters more than the brochure

The best financing program is the one your team actually offers on every qualifying job. That is a workflow question. If your estimates and invoices live in field-service software, a platform embedded in that software will get offered far more consistently than one that requires a separate portal. If your business runs through a service desk or a retail counter, the application needs to work cleanly on the customer's phone in front of your staff, in a minute or two, without anyone dictating personal information out loud.

Evaluate the unglamorous parts: how a refund or change order is handled, how reconciliation looks when funding arrives net of fees, what reporting exists, and how staff get trained. A platform that wins on rate but loses on workflow usually loses overall.

The compliance you take on as the merchant

Offering financing puts you inside consumer-credit law whether or not you ever touch the money. The practical obligations cluster in a few places.

Marketing language. Consumer-credit advertising rules attach extra disclosure requirements once ads state specific terms such as payment amounts or promo periods. Platforms supply compliant language; use it verbatim rather than improvising.

Application discipline. The customer applies. Federal regulators have taken action in this industry over applications submitted without clear consumer authorization; GreenSky's 2021 consent order with the CFPB, which involved merchant-submitted applications, is the best-known example and worth reading in the CFPB's public records. Never let staff key in an application for a customer, and keep evidence of authorization.

Honest presentation. Do not describe deferred interest as "no interest." Do not describe a lease-to-own agreement as a loan, or quote it in APR terms. Present total cost when a customer asks, and never steer a customer toward the plan that pays you best rather than the one they asked about.

Home-improvement specifics. Many states layer home-improvement contract law and door-to-door sale cancellation windows on top of everything above, and financed jobs draw more scrutiny, not less. Your contract, your financing paperwork, and your cancellation notices need to agree with each other.

A short path to a decision

If you take nothing else from this guide: identify what your customers sign, identify who pays, and interrogate the approval rate until you understand its denominator. Then read the merchant agreement, specifically the fee schedule, the refund and chargeback provisions, any exclusivity clause, and the termination terms. The 20-question checklist turns this into a structured worksheet you can run against any platform in an afternoon, and the platform reviews in this series apply it to the major names.

Run a pilot before you commit. Sixty to ninety days of real offers will tell you more than any sales deck: track how often financing was offered, how often customers applied, what share got terms they accepted, and what the fees actually cost you per funded job.

Who this is not for

Point-of-sale consumer financing is the wrong tool for some businesses, and it is better to know that now. If your average ticket is small, the fixed friction of an application rarely pays for itself. If your customers are other businesses, this entire category is inapplicable; invoice terms and B2B trade credit are a different world with different providers. If your close rate is low because demand is weak, financing will not fix that; it amplifies demand that already exists. And if you are not prepared to train staff and police how financing is presented, you are taking on compliance exposure without capturing the benefit.

Common mistakes

• Comparing platforms on advertised approval rates without asking how the rate is defined and measured.
• Adopting the most expensive promotional plan as the default offer without measuring whether it changes close rates.
• Quoting "0% financing" in ads without the platform's required disclosure language.
• Raising the price only for financed customers; program agreements commonly prohibit this, and some states restrict surcharging.
• Letting technicians or front-desk staff describe terms from memory instead of letting the application present them.
• Signing a merchant agreement without reading the recourse, refund, and exclusivity clauses.
• Choosing a prime-only lender for a customer base with mixed credit, then blaming the platform for declines.
• Treating lease-to-own as if it were a loan, in language or in paperwork.

How to verify

Everything in this guide describes structure; the specifics live in documents you can demand before signing.

• Ask the platform, in writing: who originates the credit, the current fee schedule for every plan you can offer, how approval rate is defined, when a hard credit inquiry occurs, funding timing, and what happens to fees when a job is refunded.
• Read the merchant agreement yourself, in full, with attention to recourse and chargeback triggers, holdbacks, exclusivity, minimum volume, marketing rules, and termination.
• Read the sample customer disclosures for every plan type you would offer, so nothing in them surprises you later.
• Search the CFPB consumer complaint database and your state attorney general's actions for the platform and its originating lender.
• For platforms owned by public companies, skim the parent's SEC filings; they often describe the program's mechanics and risks more candidly than the sales material.
• Confirm state availability for every state you work in, including plan-level differences.

A platform that answers these questions quickly and in writing is telling you something. So is one that will not.