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Driving Sales: Consumer Finance Programs - Part 3

Furniture World Magazine


Part 3: Driving sales through effective management of  primary, secondary and in house credit programs.


Furniture retailers use various marketing initiatives to increase sales and maintain positive customer relationships. The most obvious of these are sales consultant training, innovative compensation programs and appropriate merchandising. With all the focus on these various triggers, our industry often overlooks financing programs and ways that they can be turbocharged to drive retail success.

In this article, we will closely review various ways to successfully drive sales through the effective and efficient management of customer financing programs.

The three types of financing programs discussed here will be Primary, Secondary and In-House. Your objective in using each of these is basically the same. You want to make it possible for your customers to purchase the maximum amount, while at the same time guiding them through the process of obtaining credit in the least stressful way. If a customer has less than sterling credit, and gets rejected by your primary financing source, you will have the additional challenge of having them fill out applications to apply to your secondary source and possibly for in-store credit.

Primary Program
A majority of the nations’ furniture retailers and manufacturers have their primary customer financing programs managed by large ‘private-label’ financial institutions. In the December/January issue of FURNITURE WORLD Magazine (posted to the furninfo.com operations article archives), we outlined the benefits of partnering with this type of institution. These include: the availability of various specialty financing programs; direct mail; targeted marketing expertise, and quality servicing standards.

One key way to make your financing programs more effective and profitable is to focus on key metrics. The goal is to drive increased sales through the efficient and effective management of your financing programs.


Approval Rates – Over time I’m sure we’ve all been privy to discussions regarding approval rates between retailers and financial institutions. In these situations, some healthy banter may be a good thing as retailers want to drive approval rates up, generating more sales. Financial institutions want to mitigate risk by being on the conservative side of the argument.

It is a good idea to keep a rolling monthly tally of approval rates. This metric is similar to the close rate you already keep for individual salespeople. Approval rates are a key driver for sales because they directly affect close rates.

Average $ Sales – Another way to drive sales success with your primary financing source is to not only get more approvals but to maximize them by increasing the average amount financed. Measuring and managing both initial and subsequent add-on purchases will help you to manage and build relationships with your customers over time.

Booking Rates - What’s the value in getting deals approved but not booked? Not much. So while keeping an eye on your approval rates, keep focused on your booking rates. For example, let’s assume that a customer applies for $3,000 of financing and gets approved… but only for $1,000. Clearly, your primary source would count this as an approval, yet due to the cutback amount, the deal cannot be consummated.

One industry expert judges booking rates from primary sources to be in the 85% neighborhood while secondary programs can yield in the 65% range. The lower rate for secondary programs is primarily due to the lower credit worthiness of consumers presented to a secondary financing source after being rejected by the primary source.

Cutbacks - While there is certainly a place in your strategy for cutbacks as mentioned above, they should be monitored closely to ensure they are adding to your overall sales success, not just adding an approval that never books. Any cutback will require sales consultant savvy as they coach the customer through why they weren’t approved for the full amount.

More… More… More: A key way to maximize credit sales with your primary financial source is to obtain lists of names from them with an ‘Open To Buy’ amount that can be used in a Direct Mail marketing piece, keeping your brand in front of potential customers who have money available to spend on a regular basis. Remember your primary financial institutions have significant experience and resources here…. So use them.

Insider Tip #1: Most retail/credit staff try to obtain as little credit application information from customers as possible. This helps to avoid awkward moments during the applications process, however, the bottom line is that the more information that is collected, the more approvals will be granted. This is especially true when it is necessary to apply for “Second–Look / Buy-Deeper” programs (see below). While a credit decision can be made with just a name and social security number, you will broaden your approval net exponentially if the time is taken to get additional demographic information from your customers.

Insider Tip #2: Many otherwise professional and successful retail furniture stores are not capturing or managing these various metrics today. Knowing where you stand on the key areas will certainly increase sales success.

Sub-Prime / Buy Deeper Programs
While primary “private-label” lenders provide many benefits to driving sales, they also leave ‘meat on the bone’ as their scoring systems/models move up and down the credit continuum. Fortunately there are such companies that focus their expertise in the secondary (‘buy deeper’) space which directly drives incremental sales.

It works like this. Upon making a sale, the retailer submits their customer’s credit application to their first (primary) financing source. If the credit application is rejected, the customer is notified of the turndown and the process starts all over again for a “Buy-Deeper” program.

Tidewater Credit Services (TCS) is a leading lender in the sub-prime arena. Mrs. Judy Munden, their Director of Credit and Marketing Operations states that, “TCS has the ability to close more sales and improve your bottom line.” When asked how Tidewater interacts with Primary lenders Judy replies “These primary lenders know that Tidewater is focused on a niche that compliments their program as we are able to lend in credit spaces that they don’t touch.” Tidewater supports financing programs across 43 states (www.twcs.com/dealer).

So one may ask just how deep does a ‘Buy-Deeper’ lender such as TCS buy? While Judy and her credit team try to maximize the benefit on all applications, on average they deliver approval rates in the neighborhood of 25%. Specific results are driven by locations, demographics and the experience with the primary source.

Lewis Brubaker, Jr. is the VP and Controller for Roomstore, a 70 store home furnishings chain with stores located throughout the Southeast and Texas. Roomstore has been a Tidewater client since 1994. When asked about the expense of such ‘second-look’ programs (a common objection to buy deeper programs), he responded that he looks at “what it costs from all the efforts including what it costs to process a denial.”

Secondary financing programs are known to be more expensive for retailers due to a number of factors including higher collection expenses and increased write-offs.

Primary lending sources offer extensive features that extend payment periods for consumers and eliminate or reducing interest. I’ve nicknamed these the ‘Buy Now ~ Pay Never’ programs. In contrast, secondary financing companies limit their risk by offering less lenient terms such as Standard or 90 days “same as cash” (SAC). This mitigates risk by requiring quicker payments from the customer. If these companies were to allow consumers to go 12 or 18 months without payments, it would significantly increases the probability of a customer default.

Having a customer pay starting 30 days from the date of purchase increases the rate of payment success.

Even with these limitations, secondary financing companies can charge discounts as high as 15%. This gives many furniture retailers pause when considering whether or not to offer secondary programs.

A proper decision making process should include a full accounting of all expenses associated with running the credit program including the costs of sales lost at the last minute (after significant sales time and effort has been expended) if no secondary financing program were made available.

Clearly, in speaking with both Judy and Lewis, the ‘partnership’ aspect is in place and working well as sales results are driven in both an effective and efficient manner.

Retailers that operate in the sub-prime space will agree that a key to success is the ability to “cross-sell” various financing solutions – specifically, the specialty programs (see part 2 in this series in the February/March FURNITURE WORLD also posted to the article archives on www.furninfo.com).

How does the financing process affect your customer?
It is useful for retailers to think about how the financing process affects their customers. What does your customer feel like after she’s spent a couple of hours shopping for her dream room, only to be turned down for credit? Does she feel sad, betrayed and angry? Sure she does. Did you take her time, build up her hopes and return nothing? After all, your ad said that you offer credit.

What if you communicated up front to those customers who plan on applying for credit, that you offer various financing program options to help them, and you are looking forward to outlining as many solutions as possible.

Adjusting expectations earlier in the sales process will help to avoid difficult situations as you pass the application through primary and “buy deeper” sources.

In-House Credit Solutions
Once you flush out all opportunities from your primary and secondary sources, you may want to book the deal internally. While this initiative requires significant heavy lifting to develop and integrate all of the necessary platforms to effectively and efficiently manage these accounts, there can be some upside if done correctly. Please review the following list of benefits and risks.

Benefits Of In-House Credit:
You will have front-line knowledge of both your customers (some of which may have been doing business with for years) and local economics as it relates to employers, seasonal employment trends, etc.


•Develop a Down Payment matrix that will minimize the lending risk.


•The ability to craft customized payment schedules to mirror the customer’s ability to pay.


•Localized – Relationship driven collections.


Risks Of In-House Credit:

  • Ties up capital that can be used for various operational expansion initiatives.


  • An ever-changing landscape for collections and bankruptcies.


  • Infrastructure expenses.

Considering the pros and cons of in house credit, a good rule of thumb is to focus on what you’re good at. For most furniture retailers, that is selling and servicing their customers. If you also have a talent for building and managing an in-house credit portfolio then you should focus on this area as well. If not, then take care because the poor performance of an in-house portfolio can take your attention from what you probably do best... buy, merchandise, market and sell furniture.

While many of you see the benefit of spreading the widest approval net across various lenders, you may also realize severe “stomach acid” when you think about the operational and technical challenges of efficiently and effectively developing and integrating such programs.

There is a new platform called Approvalware that provides a platform combining both technology and analytics. It is highly agile, multimedia driven, multi-lender focused, and can turbo-charge your portfolio of financing programs. Approvalware (www.approvalware.com) also permits retailers to integrate handling of multiple external (and internal) lenders while simultaneously managing internal credit-granting systems.

Creative Business Decisions (www.cbdcredit.com) is the analytics fuel that drives the Approvalware platform. Approvalware’s Bob Swern – President / COO states that the Approvalware / CBD partnership, “is all about optimizing EVERY selling opportunity for the Retailer.”
Put another way, medium to large scale operations utilizing Approvalware and CBD can better manage customer financing programs, boost approval and booking ratios. and increase efficiencies across all lender options.
A review of the Top benefits of Approvalware / Creative Business decisions (CBD) are:

  • A comprehensive, One-Time data entry platform allowing for all applicants to follow the same approval path. With many secondary programs today, only a portion of the primary source turn-downs are submitted to a secondary source. Approvalware solves this problem.


  • Utilization of a credit bureau ‘soft-pull’ which efficiently directs the consumer’s application to the lending source with the greatest propensity for approval. This tends to drive up approval and booking rates while lowering processing expenses. 


  • 23 years of credit decision making experience in various retail spaces through the use of CBD’s analytics.


  • Fraud Identification capabilities.


  • Social Security Validations.


  • Best Bureau capabilities (increasing quality of decisions).


  • Down payment Approval Matrix.


  • Experience in the First Time Buyer spaces.


Next Issue:
Throughout this article we’ve looked at various tools that, when implemented and managed correctly, will provide a boost in sales while building relationships with consumers that will ‘keep coming back’.

Our next article will dive deeper on the In-House financing front as we round out various solutions to drive sales through the effective and efficient management of your Customer Financing Programs.


Glenn Hafner is the president of Hafner and Associates, a consulting firm that focuses on providing ‘Strategies that Drive Revenues’. Formerly the National Director of Sales Contracts for Beneficial Credit Services, National Director of Strategic Initiatives of Household Finance, and Group Director of Brand Management and New Product Development of HSBC – US, Glenn provides detailed insight on driving sales through the effective use of Customer Financing Programs. Inquiries on any aspect of financing programs can be made to Glenn at ghafner@furninfo.com.