How to offer financing

Aug 03 2021 | Julie Warshaw, PayPal Editorial Staff

Offering financing to your customers can make or break a sale.
In fact, 85% of consumers say that being able to pay for a purchase over time makes it possible for them to buy the things they need today.1 Not only that, 64% say they are more likely to make a purchase at a retailer that offers interest-free payment options.2

That's because some shoppers will approach checkout and decide they don’t want to pay the full amount now for the items in their cart. Many of these would-be customers simply abandon their purchase. Offering financing to customers can help rescue some of these abandoned carts, since 56% of shoppers say they prefer to pay a purchase back in installments rather than use a credit card.3

When shoppers know they’ll have a way to buy what they want with just a fraction of the total due at the time of their transaction, they may be more likely to make a purchase. This kind of customer financing is aptly known as ‘buy now, pay later’ and allows people to pay over time, while your business gets paid in full up front.

How does customer financing work?

Let’s take a look at the nuts and bolts of how to offer customer financing so you can see what the experience will be like.

When a visitor arrives at your site, your consumer financing provider should be able to display your financing options so that customers can see them while they're browsing. The installment amount for each option should automatically calculate so buyers can see which option makes more sense for their budget.

At checkout, the customer can choose and apply for their preferred financing option. The payment provider may run a quick check on the customer to approve or deny the funding. If approved, the customer will complete the transaction and then pay back the financing provider according to the agreed upon payment schedule.

How to offer financing to customers.

Once you decide to offer consumer financing, there are several things you'll want to consider. It’s important to choose an option that benefits both your business and your customers.

1. Why should I use a third-party financing provider?
Business owners who choose to finance customer orders on their own face a few potential drawbacks. It can be time-consuming and expensive to build a new installment payment process from scratch. That's why many retailers partner with an outside provider to offer customer financing. A third-party financing provider does the heavy lifting of building, testing, and securing systems.

But one of the biggest benefits is that a customer financing provider may pay you the full amount, up front. This helps make it easier for you to manage your business’s cash flow. And the provider will also be responsible for collecting the payments from the customer.

2. How do I compare third-party financing providers?
Make sure you compare your different provider options to find one that fits your business. Third-party financing options can range from a local bank to your current payment processor, so your existing providers are a good place to start. That way you may not have to add another vendor to manage.

Compare costs first when looking at financing providers. Some providers may require monthly payments to offer financing, while others may only charge a fee per transaction. Also, check for startup fees and integration costs, along with any other fees that may be charged. Each of these fees can add up over time, impacting your margins.

Look for a provider that is easy for customers to use, has low or no customer fees, and a speedy application process. It should be able to display a customer’s payment schedule at checkout so they know how much they will owe and when. An ideal financing option should have no cost to the customer, provided they pay it back on time, making it a cost-effective solution.

3. How do I choose a payment solution?
Once you decide on a customer financing provider, keep in mind that not every financing option they offer will make sense for every business. Depending on your product mix and average customer order size, you may find that giving shoppers a chance to pay in installments or open a revolving line of credit is the best fit.

For example, PayPal Credit4 gives your customers a way to buy now and pay over time, with six months special financing on purchases of $99 or more, while PayPal Pay in 45 lets them make one down payment at time of purchase and then make three more payments every two weeks in equal installments, interest-free.
It's important to note that not all installment financing options are available in all countries. Even some U.S. states may have regulations around buy now, pay later services. Check with your provider to ensure it can serve the markets where your audience tends to shop.

4. How do I integrate customer financing?
Many providers have pre-built integrations that let you offer financing with just a few clicks. If you're already on an ecommerce platform, check to see if there is an existing integration between your payment provider and commerce platform. Otherwise, you may need to implement a separate provider.

5. How can I optimize the financing experience?
Once financing is integrated into your store, make sure you’re catching shoppers’ attention by displaying financing options. You should have messaging on each product page that automatically calculates and displays installment payments for a given item. This lets shoppers know exactly what they will owe for each payment period while helping your product appear more affordable.

6. How can I promote my financing options?
Although it's growing in popularity, not every retailer offers customer financing. This gives you a chance to attract shoppers who are in the market for what you sell but might not have the cash on hand to pay for it. In addition to displaying your financing options across your site, include them in marketing materials such as email, social media posts, direct mail, search marketing, and even in-store signage.

Watch the webinar The Rising Business of Buy Now, Pay Later to learn more about how to offer buy now, pay later options to your customers.
The content of this article is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.

1–3. Online study commissioned by PayPal and conducted by Logica Research in May 2020 involving 2,000 U.S. consumers, half were PayPal Credit users and half were non-PayPal Credit users.
4. PayPal Credit is subject to consumer credit approval.
5. About Pay in 4: Consumer late fee may apply for missed payments and varies by consumer’s state of residency. Loans to California residents are made or arranged pursuant to a California Finance Lenders Law License. PayPal, Inc. is a Georgia Installment Lender Licensee, NMLS #910457

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Frequently asked questions.

OverviewGetting PaidHow it WorksMarketing Pay Later in the US 

What Buy Now, Pay Later products does PayPal offer?

In the US, PayPal Pay Later includes the following options that customers can use to buy now and pay later, while you get paid in full, up front. Pay Later is included in PayPal Checkout at no additional cost to you.
  • Pay in 4*: A short-term installment offering that lets customers pay for purchases of $30-$1500 in 4 interest-free payments.
  • PayPal Credit**: A revolving line of credit that shoppers can use to pay over time, with a promotional offer of 6 months special financing on purchases of $99+.
Pay Later offers are also available in several countries in Europe and Asia-Pacific.

As of November 2021

How much does it cost for me to offer Pay Later?

Pay Later offers are included with PayPal Checkout as part of your standard PayPal transaction rate. There's no additional cost to you to offer or market Pay Later.

When do I get paid for purchases made with Pay Later?

Once the order is processed, you get paid in full, up front. We take care of collecting the payments from your customers who have the flexibility to pay over time.

What if the customer doesn't pay on time or at all, do I still get paid?

Yes, you get paid in full once the order is processed. We’ll take care of collecting the payments from your customers. There's no additional cost or risk to your business.  

What if a customer wants to return something they purchased with Pay Later – how do refunds work?

When a customer returns something they purchased with Pay Later, our standard returns process is followed. You would send a request to us with the amount to be refunded, and we’ll credit the customer’s account accordingly. 

When customers make a purchase with Pay Later, does it include the total transaction amount (taxes, delivery, and other line items outside of the actual product cost)?

Yes, both Pay in 4 and PayPal Credit let consumers pay for their entire purchase over time including tax and any delivery costs. 

Can Pay Later be used to purchase all types of products?

Pay Later can be used for purchases of tangible/physical goods as well as most intangible/digital goods. Pay Later is subject to the PayPal Acceptable Use Policy.

Can customers outside of the US use Pay in 4 or PayPal Credit to purchase from my site?

No, but they may be able to use the PayPal Pay Later offer available in their country of residence.
Pay Later offers are available in several countries in Europe and Asia-Pacific.

Which currencies are accepted for Pay Later (Pay in 4 and PayPal Credit) transactions?

Pay Later purchases can be made in all currencies that we support, not just USD. For transactions not in USD, we automatically convert the transaction amount to USD at checkout. Currency conversion charges will apply as outlined in the PayPal User Agreement.

Which ecommerce platforms does PayPal Pay Later work with?

Pay Later is available on the following ecommerce platforms in the US with more being added regularly.
  • BigCommerce
  • WooCommerce
  • Magento
  • Salesforce Commerce Cloud
  • Shift4Shop
  • Miva
  • OpenCart
  • XCart
  • AmeriCommerce
  • Centarro
  • Pinnacle Cart
  • Solidus
PayPal Pay Later is also available on popular ecommerce platforms in several countries in Europe and Asia-Pacific.

Visit the Commerce Platforms page on the PayPal Developer Site for step-by-step instructions on how to activate and promote Pay Later on the platforms above and to see the current list of our ecommerce platform partners by country.

Is a credit check required for customers?

Pay in 4 is an installment solution. Approval decisions are made using PayPal customer data and scoring models but may require a soft credit check when not enough information is available to make an approval decision. There's no impact to the customer’s credit score.
PayPal Credit is a revolving line of credit that requires a hard credit check.

What tools are available for me to market Pay Later offers on my website?

Dynamic Pay Later messaging and a Pay Later button are available for you to market Pay Later on your site - available at no extra cost to you.
Letting customers know early in their shopping process that options are available for them to buy now and pay later gives them more purchasing power, and can help you grow sales, increase average order amounts, and increase customer loyalty.

What is dynamic messaging and how do I add it to my site?

Dynamic messaging enables you to display multiple Pay Later offers on your website through a single integration and helps ensure that the most relevant Pay Later offer will automatically be displayed to your customers as they're browsing your site.
You can get started by adding dynamic Pay Later messaging to your website on product detail, cart and checkout pages (and passing the amount parameters) so that shoppers can see that Pay Later offers that are available.
To add dynamic messaging to your site:
  • If your site is on a commerce platform: Visit the Commerce Platforms page on the PayPal Developer Site for step-by-step instructions for your platform.
  • If you update your own site: Add dynamic messaging to your site through the Pay Later Messaging Center.

What are the benefits of adding dynamic Pay Later messaging to my website?

Adding dynamic messaging lets customers know they can buy now and pay later while they're browsing your site. Showing customers Pay Later offers early in the shopping process gives them more purchasing power, and can help you grow sales, increase average order amounts, and increase customer loyalty.

Where should I add Pay Later dynamic messaging on my site?

Here are a couple of best practices to help optimize the impact of dynamic messaging on your site:
  • Add Pay Later messaging to product detail pages near prices or the “add to cart” button so customers know they can buy now and pay later when they’re deciding what to purchase.
  • In checkout, remind customers that they can buy now and pay later by including Pay Later messaging on cart and checkout pages near cart subtotals.

Why should I add a Pay Later button? I already have a PayPal button at checkout.

Having a Pay Later button at checkout makes it easier for customers to choose between and apply for available Pay Later offers in the checkout flow providing a better customer experience.

How do I know if my business is eligible to promote Pay Later offers in the US?

You’re eligible to promote Pay Later offers if you're a US-based merchant with a US-facing website, and a one-time payment integration. Certain categories, like Real Money Gaming, aren't eligible to promote Pay Later offers. We may also periodically identify additional merchant categories that aren’t eligible to promote Pay Later offers.

*About Pay in 4: Loans to California residents are made or arranged pursuant to a California Finance Lenders Law License. PayPal, Inc. is a Georgia Installment Lender Licensee, NMLS #910457.
**PayPal Credit is subject to consumer credit approval.
* The below information applies to Business accounts only.

How do I enable subscriptions for my business?  

You can enable subscriptions using one of 3 methods:  
  1. PayPal Subscription Dashboard and Smart Payment Button (SDK)
  • Go to your Subscriptions.
  • Click Create Plan and enter your subscription details.  
  • When finished, click Save Plan and Turn on Plan.
  • Click Generate Code and Copy Code to copy and paste the Smart Payment Button HTML/JS code to your website.
  1. Subscription REST APIs
  • Generate your API credentials through the PayPal developer portal.
  • Use the create plan API to produce and activate your subscription plan.
  • Use the PayPal JavaScript SDK to add the PayPal subscribe button to your website
  1. Sell on Social subscription weblink
  • Go to your Subscriptions.
  • Click Create Plan and enter your subscription details.  
  • When finished, click Save Plan and Turn on Plan.
  • Click Generate Link and Copy Link to copy and paste the weblink and add it to your social media platform.

Can I temporarily pause an active subscription? 

Yes. To pause a subscription, follow these steps:
  1. Go to your Subscriptions.
  2. Select the subscription profile.   
  3. Select the button next to "Paused".
You can also reactivate a subscription following the steps above and selecting the button next to "Active". 

Note: PayPal doesn't charge customers for subscriptions that are paused.  

What changes can customers make to their own subscription plans? 

Customers can modify their existing subscription quantity. The subscription price will be based on the new quantity.
Customers can also switch plans for the same product. The billing and pricing terms of the new plan will take effect during the next cycle.

Can I enable subscriptions on my social media sites?

Yes. You can enable subscriptions on social media platforms including Facebook and Instagram. Here's how:
  1. Go to your Subscriptions.
  2. Click Create Plan and enter your subscription details.  
  3. When finished, click Save Plan and Turn on Plan.
  4. Click Generate Link and Copy Link to copy and paste the weblink and add it to your social media platform.

How do I track overall performance of my subscription business?  

You can track performance through various metrics on the dashboard. Here's how:
  1. Go to your Subscriptions.
  2. Click Overview.
The overview page allows you to view cumulative revenue and total subscriptions count for your business. You can also compare the performance of different subscription plans by churn rate, monthly recurring revenue and customer lifetime value.

What features are included in a PayPal subscription plan?    

You can choose from multiple features to customize subscription plans and pricing, including:
Cross-border subscriptions. Define subscription plans in different currencies to enable cross-border subscriptions. The customer will be charged in the currency you configure.
Promotional trial cycles. Offer free or discounted trial cycles to your subscribers by defining trial periods for subscription plans. You can define up to 2 trial periods and set discounted pricing.
Example: A merchant offering video streaming service configures a subscription plan at $0 for the first month, $4.99 per month for the next 2 months and $9.99 per month onward.
One-time setup fee. Define a one-time setup fee for any registration or configuration purpose.
Example: A merchant charges a $10 registration fee to enroll in gym and yoga classes, normally priced at $50 per month.
Negotiated or discounted prices. Customize any subscription at a negotiated or discounted price to certain customers.
Example: An educational institute typically offers online tuition classes at $10 per month but offers a discounted price of $8 per month to a specific student.

Can I offer tier-based pricing to my subscribers?  

Yes. You can define volume-based and tier-based pricing models for your subscription plans.  
Example: A merchant offering helpdesk services and live technician support defines a tier-based plan at $20 per technician for the first 10 technicians, $18 per technician for the next 10 technicians and $15 per technician after that. If a subscriber requires 30 technicians, the subscription price will be: $20x10+$18x10 + $15x10 = $530 per month.

Can I update the price of all active subscriptions in a particular plan at once?  

Yes. You can update the price of all active subscriptions by updating the price of the original subscription plan.
Example: If you update the price of a 'standard' plan from $20 per month to $25 per month, then all existing and new subscriptions under the 'standard' plan will be charged $25 per month from the next effective billing cycle.

Does PayPal provide real-time webhooks for payment status? 

Yes. PayPal provides webhooks for all payment and lifecycle activities. To track payment status, your platform must be set up to listen to the webhooks.

Can I modify the PayPal Smart Payment Button layout and color format to match the look of my website? 

Yes. To change the look of the PayPal Smart Payment Button, follow these steps:
  1. Go to your Subscriptions.
  2. Click Subscription plans.
  3. Click the 3 dots to the right of the plan you want to update and select "Copy code".
  4. Click Copy Code to copy and paste the button code into any editor and make your changes. 

Can I enable credit card, bank account and other payment method options for my subscribers?  

Yes. PayPal supports full stack payments capabilities including:
  • PayPal
  • Credit/debit card and bank account via the guest flow for non-PayPal customers
  • Unbranded or white-labeled card support (via API only)

Can I generate API credentials for integrating subscriptions? 

Yes. You can generate API credentials through the PayPal developer portal.

Can I create a PayPal Sandbox account to test and integrate subscriptions? 

Yes. You can create a PayPal Sandbox account through the PayPal developer portal.  

What happens when a subscription payment fails? 

If a subscription payment fails at the start of the billing cycle, we'll try the payment again every 5 days for a maximum of two retries until the next billing cycle.
If the second payment attempt fails, we'll increment the failed payment count by 1, place the failed payment amount in the customer's outstanding balance and add the amount owed to the next billing cycle.
You can also set a failure threshold for subscription plans. We'll pause the subscription if the customer exceeds the failure threshold.
You can capture an outstanding balance at any time. You might want to do this if the failure threshold is met and the subscription is suspended.
Add PayPal as a payment option to any checkout with PayPal Checkout (formerly known as Express Checkout). It can be set up in minutes and offers the convenience and security of PayPal, turning more shoppers into buyers.

How does it work?
With PayPal Checkout, your customers can complete transactions in just a few steps, using their shipping and billing information already stored securely at PayPal to check out so they don’t have to re-enter it on your site. When PayPal Checkout is configured with the default settings, customers must have a PayPal account to complete a payment.

PayPal Checkout is available to any merchant that has API access, and any customer with a PayPal account can use Checkout for their purchases. PayPal Checkout has many options that support many different checkout flows. See our Developer website for more information.

What are PayPal QR code payments?

QR code payments allow you to get paid in person with PayPal just by displaying your QR code for customers to scan using the PayPal app.

Do customers need additional apps to scan my PayPal QR code?

No, customers just need the PayPal app to scan the QR code.  

How do I generate and set up my PayPal QR code?

You may get your QR code here.

If you download your QR code directly, then you're already set up. You can start using your code to receive payments straight away.

If you order printed QR codes, we'll then send you an confirmation email. Once you receive your in-store signage kit, you can follow the instruction in that email to activate your QR code kit. After that, you're all set.

Remember, you can't use your code to send payments to yourself, so if you scan your code after it's already been linked to your account, you'll get a message letting you know that your code is already set up.

How much does it cost to use PayPal QR code payments?

It’s free to create and share a QR code.

For buyers, making a payment via QR code works like sending money through the PayPal app. It’s always free for buyers when they select Goods & Services.

For sellers, more information on transaction fees for QR code payments can be found on our fees page.

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