Installment Contract Financing
Turns Consumer Receivables Into Immediate Working Capital Financing

The retail installment contract commonly found in industries such as leisure services, educational products and services, and medical devices and services, can easily be converted into a lump sump payment, giving your business a badly needed shot in the arm or a stable, ongoing source of working capital financing.

For centuries, businesses have use receivables factoring to stabilize cash flow and finance operations by selling their accounts receivable, but until recently, companies with consumer installment contract sales were not able to utilize this powerful financial tool.

Today, there are factoring companies that specialize in installment contract financing, or the purchase of retail installment contracts from businesses that offer terms to their customers. And like traditional factoring companies, they offer direct-to-consumer businesses the same value-added collections and accounting services enjoyed by business-to-business firms, eliminating costly overhead and the headaches associated with managing the contracts.

As with the traditional invoice-based account receivable factoring, installment contract financing gives you these important benefits:

• Fast money deposited directly in your bank account to meet urgent needs
• Stable working capital financing
• A tool to finance expansion without incurring debt.

How Does Installment Contract Financing Work?

Savvy business owners know that offering payment terms to potential customers can dramatically increase sales. However, forgoing a lump sum payment for the product or service you offer in exchange for accepting a series of small payments over time presents significant financial and administrative challenges to any company — hurdles that often stand in the way of companies reaching their full potential.

Installment contract financing blasts away these barriers, making it easy to offer customers terms on larger purchases. The competitive advantages can be enormous if terms are not generally available for your product or service in your market area.

Once you have established a relationship with a contract buyer, the process of selling your installment contracts is quite simple:

• Your company negotiates a sale of a product or service with a customer
• To optimize the sale of the contract, you submit your customer’s basic income and credit information to the contract buyer for approval and suggested terms
• Your company enters into an installment contract with its customer
• After the contract is signed, it is immediately assigned to your contract buyer, who then transmits the funding proceeds directly to the client company’s bank account

What Types Of Businesses Are Eligible?

There are many types of businesses that can sell installment contracts. Most contract buyers will be open to considering just about any product or service that lends itself to an installment sale.

Following is a list of industries that generally fall into the parameters for installment contract sales. In fact, the possibilities are limitless, so if you don't see your company's product or service type below, discuss your specific situation with a contract buyer. Chances are, if it makes sense, you're in!

Educational Products & Services

• College Funding & Planning Services
• Alternative Learning Instruction
• Seminars & Business Opportunity Programs
• Vocational & Trade Schools, such as Computer Certifications, Medical Billing Schools, Truck Driving Schools, Culinary Arts

Leisure services & Membership Contracts

• Timeshare Programs
• Vacation Club Memberships
• Campground Memberships
• Dating Services
• Health Club Memberships
• Golf Club Memberships
• Martial Arts
• Discount Buyers Clubs

Household Products & Services

• Woodworking Hobby Tool Sales
• Bulk Home Food Sales
• Vacuum Sales
• Musical Instrument Sales
• Furniture & Jewelry Sales
• Fitness Equipment

Infomercial & Direct Response

• “Flex” Pay Plans, i.e. "4 Easy Payments!”
• Television Infomercial, Print Ads, Internet Ads…

Medical Devices & Services

• Dental Procedures
• Body Scanning
• Elective Surgeries
• Laser Hair Treatment
• Emergency Life Saving Devices

Key Considerations

As is the case with receivables factoring, companies considering the sale of their consumer contracts should understand that the contracts will be purchased at a discount and that the contract buyer will hold back a reserve to offset defaulted contracts. The discount and reserve amount are both dependent on the credit quality of the end customer; so, the better the customers’ credit quality, the higher the price paid for the contract the less held back in reserve.

One of the first things any business needs to consider is whether its profit margin on sales is high enough to absorb the discount and reserve hold back, while maintaining an acceptable operational cash flow. Ideally, a company that sells its contracts will have a minimum profit margin of 40%, but the higher the better.

Look for a well-established and flexible contract buyer, preferably one who can work with all types of consumer credit and one that has the ability to perform instant, on-line approvals. A good contract buyer will work with new, start up companies as well as niche industries that fall outside the norm. Finally, be aware that some larger funding sources will require a guaranteed volume requirement that many new businesses cannot meet.


Business financing can be a daunting challenge in today's tough credit climate. Installment contract financing offers businesses many benefits, not the least of which is the promise of a relatively easy way to increase sales and bring more cash in the door to move your company toward its full potential.

Find out how installment contract financing can help your company prosper today!