Customer financing for contractors explained

Customer financing lets a homeowner pay for a large job over time while you get paid in full up front, minus a fee. A third-party lender approves the customer, pays you, and collects from the customer. There are two common types: dedicated contractor financing programs for big projects, and pay-over-time options like Affirm and Klarna that appear at checkout. Either way, you don't carry the loan, but you do pay for the convenience.

For jobs like a new furnace, a roof or a sewer line, financing can be the difference between "we'll have to wait" and "let's do it." Here's how it works and how to offer it well.

How does customer financing work for contractors?

The basic flow is the same across most programs:

The customer applies for financing, often during the sales conversation or at checkout.
The lender decides whether to approve them, how much, and on what terms. You don't make that decision.
If approved, the lender pays you, usually the full job amount minus a fee or discount, within a few business days.
The customer repays the lender on the plan they agreed to.

Because the lender carries the loan, a customer who later misses payments is generally the lender's problem, not yours, though you should check the specific terms of any program you join.

What's the difference between contractor financing and Affirm or Klarna?

There are two broad models.

Dedicated contractor financing programs

These are lending programs built for home improvement. You enroll your business, and customers apply for a loan or credit line for a specific project.

Usually designed for larger amounts, like full system replacements and remodels
Often offer promotional plans, such as deferred interest or reduced rates, which are typically paid for by you through a higher merchant fee
Need an enrollment process, and sometimes training for your sales team on how to present them

Pay-over-time at checkout (Affirm, Klarna and similar)

These appear as payment options on the checkout page, alongside card and bank payments. The customer chooses one, applies in a few steps, and if approved, completes the payment.

Simple for the customer: they apply on their phone at checkout
No separate sales process for you; the option is just there on the invoice or quote payment page
Each lender sets its own minimum and maximum amounts, and the lender sets the customer's plan and rate
You're paid like a card payment, minus the fee

Which suits you depends on your typical job size. A company doing mostly $500 to $5,000 repairs and replacements may find checkout options cover nearly everything. A company selling $20,000 remodels may want a dedicated program as well.

What does financing cost the contractor?

The merchant fee for financing is typically higher than a standard card processing fee. Promotional plans, like interest-free periods for the customer, usually cost the merchant more, because someone has to pay for that interest.

Before turning on any financing option:

Find the exact fee for each option you'll offer
Work it into your pricing. If financing fees are a regular part of your sales, your margins need to account for them. Our guide to markup vs. margin shows how to price from cost to a target margin.
Decide whether to offer it on every job or only above a certain amount. A minimum, like $500, keeps you from paying financing fees on small repairs that most customers can pay outright.

Be careful about charging financed customers more than cash customers. Rules about surcharges and price differences vary, and lenders' merchant agreements may restrict it. Check before you do it.

When should you offer financing?

Bring it up when it helps the customer, not as a pressure tactic:

On large jobs, especially unexpected ones. A failed furnace in January or a sewer line backup are emergencies nobody budgeted for.
When presenting options. If you offer good, better and best, showing an approximate monthly amount next to each option helps customers compare what fits their budget.
When a customer hesitates on price. "Would it help to spread that out?" is an honest question, not a sales trick.

Present it simply: the total price first, then the approximate monthly amount, and always "subject to approval." The customer should understand they're borrowing money and that the lender will set the actual terms.

What rules apply to offering and advertising financing?

Consumer credit is regulated, and the rules apply to how you talk about it, not just to the lender. A few general points to check:

Advertising specific terms. Federal truth-in-lending rules require additional disclosures when an ad mentions certain credit terms, such as a specific monthly payment or down payment. Use lender-approved wording when you advertise financing.
Ad platforms. Some ad platforms treat financing offers as a special category with extra restrictions.
State rules. Some states have additional consumer credit or home-improvement contract requirements.
The lender's rules. Your merchant agreement will usually say how you may describe their product.

None of this is legal advice. If you plan to advertise financing heavily, have an attorney or your lender's compliance team review your materials.

How do you present financing without being pushy?

A few habits keep it helpful:

Lead with the price. Never hide the total behind a monthly number.
Say it's optional. "Some customers like to spread this out. That's an option if you'd like it."
Keep it truthful. Don't promise approval or a specific rate. The lender decides.
Don't push financing on customers who can pay. It costs you more than card or bank payments.
Respect a no. If they'd rather wait, schedule a follow-up instead.

Does financing replace deposits?

Not exactly. If a customer finances the whole job, you might be paid in full at the start or at completion, depending on the program. If they pay a deposit and finance the rest, or finance the deposit itself, plan your cash flow accordingly. Our guide to deposits for contractors covers deposit sizing and timing.

FAQ

Does the contractor have to approve the customer? No. The lender approves or declines the customer and sets their plan. You simply see whether the payment went through.

What if the customer is declined? Offer the other ways to pay: card, bank payment, or a smaller option that fits their budget. Don't promise another lender will approve them.

Is financing worth the fee? It can be when it helps customers approve larger jobs they'd otherwise delay or shrink. Track whether financed jobs are increasing your average ticket and close rate, and compare against the fees.

Can customers finance a deposit? With some setups, yes. It depends on the lender and your payment system.

How ServFlo helps

ServFlo can offer Affirm and Klarna through Stripe on your invoices and quote deposits, once Stripe approves each one for your account. You choose which to offer and the minimum amount (by default $500), and you can turn financing off on any individual invoice or quote. Customers see "or about $X/mo" on quotes and pay pages, always with "subject to approval; the lender sets your plan and rate," and the fee is shown in your settings before you turn it on. You're paid like a card payment, minus the fee. See payments, quotes and invoices, and how ServFlo works for HVAC companies.

Photo by Watt A Lot on Unsplash.

Customer financing for contractors: consumer financing, Affirm and Klarna explained