Out of all the hurdles standing in the way of optimized profit margins, only a few qualify as self-imposed. Those obstacles theoretically could be the simplest for an owner to remove, but they can also prove among the most difficult if they involve ingrained habits or perceptions.

One example: Drawing conclusions that affect whether a contractor includes higher-end or more sustainable options in a proposal to a homeowner. Unchecked, a natural tendency to size up the odds can sell the customer (and the sale) short.

The idea of consumer financing can bring out an equally costly bias on the other end of the spectrum. Contractors might ask themselves, “Which customers need financing?” instead of the more revealing and productive question, “Which customers want financing?”

Financing Brings HVAC Contractors Unexpected Benefits

“We fell into this thinking,” recalled Laura DiFilippo, president of DiFilippo’s Service in Paoli, Pennsylvania.

DiFilippo’s has cultivated a customer base in a high-end market, a clientele that can afford to replace a system and pay in full. So the company didn’t bother with investigating or promoting financing options.

SELF-SERVICE: Laura DiFilippo, president of DiFilippo Service in Paoli, Pennsylvania, suggests that contractors include a link in their emails, encouraging customers to follow it to apply for financing. Not only is it more secure, she said, but it saves administrative time for her team.

“We were wrong!” DeFilippo wrote. “Once we began pushing the zero percent financing and really got an understanding of how easy it was for our clients to finance, we went all in.”

In DiFilippo’s case, the company used the Wells Fargo program available to them as a Trane TCS dealer.

Manufacturers have largely already been converted on this issue.

“We’ve continued to engage more and more with financing as homeowners continue to evolve and expect financing on all their purchases,” said Barb Cox, senior director of marketing at Nortek, which partners with FTL Finance.

Even if customers don’t avail themselves of financing, they expect to be offered the option.

“That is a trend that may not have been there five or 10 years ago,” Cox observed.

Effect of Financing on the Amount of HVAC Service Installations

Does access to financing make the difference between a customer getting work done or not at all? Maybe sometimes, if the need is not too urgent. These days, it seems more likely to serve as a tiebreaker if a customer must choose between two otherwise similar proposals.

SMARTER HOME: Contractor and manufacturer experiences find that offering financing can point an owner to higher-efficiency selections and higher-dollar projects than they would have otherwise chosen.

However, financing has a stealthier effect beyond the simple yes/no decision.

“One dataset we follow is the American Home Comfort study by Decision Analyst,” Cox said. “The 2019 report shows the homeowner spent $1,956 more when financing was used.”

That finding aligns with DiFilippo’s experience.

Financing, she said, “helped us get bigger, more expensive jobs because those clients didn’t have to write a huge check, plus they got same-as-cash financing.”

Anyone can understand how choosing a same-as-cash installment plan can allow a customer to hold on to more money for longer and to generate income with it through earning interest or investment. The irony of not offering financing to wealthier customers is that those are the very people who are more likely to actually be in position to take advantage of that strategy.

In retrospect, the results of the DiFilippo’s Service decision to cast a wider net are as unsurprising as they are impressive.

“We went from financing five jobs a year to five jobs a month,” reported DiFilippo, who noted that it is much easier to sell a $10,000 job for zero percent financing over 36 months as opposed to cash on delivery.

Regardless of whether the customer could pay in full if absolutely necessary or not, she explained that “it allows you to price equipment like cars — a monthly price that seems way more feasible than the full asking price.”

How to Navigate the Different Financing Options Available

Contractors should keep in mind that while the “same as cash” scenario has its own benefits, making the most of financing does involve understanding your customer base as a whole.

TICK TOCK: Alex George of Dividend Finance notes that many finance projects arise fairly suddenly, when the need (or the unit) finally reaches a breaking point. Financing can ease the way through an unscheduled expense.

“It’s always good for a contractor to consider who their customer is and what sort of terms they are likely to choose,” said Alex George, senior marketing manager at Dividend Finance.

Dividend works directly with contractors, representing yet another financing option.

“We put the technology first, making it as easy as possible for installers to offer financing at the point of sale,” George explained. “In most cases, this takes place at the kitchen table, when the homeowner needs approval for financing in order to make a decision. This is important because the majority of HVAC projects are not planned out, but rather in a time of need or even an emergency.”

Dividend offers the contractor options for rate structures that the contractor feels will prove most successful. George noted that different customers may be used to different types of APRs, and that since this financing is an unsecured loan, any customer would first need to qualify for a chosen option. The stronger the credit history, the more a rate will improve on what a credit card might offer.

What an independent finance option like Dividend can offer is a streamlined process, without going through additional bank or credit union applications. The company, which presently works with over 1,200 home improvement and HVAC-related partners, touts its online portal as a customer- (and contractor-) friendly way to move the process and close a deal.

“Once a customer is approved and signs a loan agreement, then Dividend will disburse funds directly to the contractor based on the terms of their partnership, and will work with the customer to service their loan,” George said.

Back in the realm of manufacturer-offered financing already available to many contractors, those partners also often offer considerable flexibility.

“What is great about consumer financing is there really is no typical,” said Cox. Options can include “installment loans, deferred interest, revolving credit … the savvy contractor offers the best financing program to fit the proposal.”

She added that many of FTL Finance’s options come with no cost to the contractor.

When consumers do finance HVAC work, DiFilippo says, they generally take full advantage of it.

“Ninety-five percent of our clients who finance do it for the entire amount. Rarely do we see partial financing.”

Administrating Financing Options and Customer Sales

Using Dividend’s process as an example of an independent financing option, contractors go through an onboarding process and then activation process.

GREENER RETURNS: Higher-income clients may be able to pay in full, but they can also appreciate low- or zero-percent financing that lets them keep and grow more of their money for longer periods of time.

Dividend learns enough about the contractor to assign an account director based on location. That contact helps the contractor understand and select from their rate structure options.

Activation culminates with “a brief team training on Dividend and its financial portal,” George said. “The portal is very intuitive, with clear step-by-step instruction of how to run a customer application in just 90 seconds.”

Providing project details for a now-approved project triggers a loan agreement sent with the contract for the work. When the customer signs those, work can proceed, the contractor will receive payment, and Dividend manages the loan until it is paid back in full. George noted that his company’s entire process not only saves time but is paperless.

Financing Can Offer New and Sustainable Growth

Before beginning to offer financing, Nortek’s Cox said, contractors should ask themselves a question.

“Do you want to grow your business and close more sales?”

If a contractor is not only interested but prepared for that, Cox says Nortek “can show the contractor how they can close 30-50 percent more projects just by offering financing to every customer.”

For a simple but effective way to promote financing, DiFilippo recommends that contractors include a link in all their emails, directing clients to go and fill out the application themselves.

“It’s more secure for them,” and also reduces administrative time, she said.

Asked if financing tends to affect certain types of work, Cox said that high-efficiency equipment tends to get financed more often.

“The correlation is a savvy contractor who also understands that a homeowner is more likely to buy high efficiency if they see a breakdown in (terms of) monthly payments versus a lump sum.”

DiFilippo has seen similar results, reporting that the company’s “more expensive service work and all installations” have benefited from financing availability.

“Really,” DiFilippos concluded, “we are only limited by how we view and offer it.”