Third-party financing has become one of the most effective ways for businesses to offer flexible payment options without taking on unnecessary credit risk. From healthcare providers and service businesses to e-commerce brands and in-store retailers, offering customer financing options allows companies to meet customers’ needs while improving cash flow, conversion rates, and customer satisfaction.

At its core, third-party financing enables customers to buy now and pay later, spreading the total amount of a purchase into manageable monthly payments instead of requiring a full payment upfront. For businesses, this financing model can increase sales, attract new customers, and create a win-win experience for everyone involved.

What Is Third-Party Financing?

Third-party financing is where a third party, like a fintech company or financial institution, pays the business on behalf of the customer at checkout. The customer then repays the financing provider over time according to agreed-upon payment terms.

Unlike in-house customer financing, where businesses manage credit checks, receivables, and payment collection internally, third-party financing companies handle the entire financing process. This includes the credit application, approval process, loan application, disclosures, and ongoing customer payment management.

Common examples of third-party financing providers include BNPL platforms like Cherry Payment Plans, installment loan providers, point-of-sale financing companies like Synchrony, and other financing companies operating across financial services.

Third-Party Financing in Action Across Industries

Third-party financing plays an important role across a wide range of industries, from healthcare and home improvement to education, retail, and professional services. In each of these settings, financing helps customers move forward with medical procedures, elective treatments, or other high-cost services without unnecessary financial pressure.

For businesses, offering consumer financing through a trusted third-party provider often leads to higher customer satisfaction and stronger long-term relationships.

Third-Party Financing vs In-House Financing

Third-party financing is different from in-house financing, a lending program in which the business functions as the lender, managing the full set of financing requirements internally.

While in-house financing gives businesses full control, it also introduces challenges like running credit applications, assessing creditworthiness, carrying financed balances in accounts receivable, collecting payments, and assuming full credit risk if a customer defaults.

Third-party financing shifts these responsibilities to an outside financing provider, allowing businesses to focus on operations and customer support instead of financing administration.

For many service providers, especially in healthcare and other service businesses, third-party financing is safer and more scalable than in-house customer financing, and more streamlined than other types of financing from traditional banks and credit unions.

How Third-Party Financing Works

A third-party financing program is designed to be simple and fast for both businesses and customers.

When a customer reaches checkout, either online or at the point of sale in-store, they’re presented with financing offers alongside other payment methods like debit and credit cards. If the customer selects financing, they complete a short application process that evaluates eligibility, creditworthiness, and customer credit through soft or hard credit checks.

Most financing providers assess factors like credit score, income, and credit risk to determine approval and loan amounts, and approval decisions can happen instantly. Once approved, the third-party lender pays the service provider directly, typically within a few business days. The customer then repays the loan over time, often through installment plans or short-term repayment schedules.

This approach allows businesses to receive working capital quickly while avoiding late payments, customer defaults, and the administrative burden of managing financing plans internally.

Types of Third-Party Financing Options

Third-party financing generally falls into a few core financing models. These models determine how payments are structured, how credit is extended, and how customers repay over time.

Buy Now, Pay Later (BNPL)

BNPL allows customers to split purchases into short-term installment payments, often with interest-free options when paid on time. These plans are commonly used at checkout for smaller to mid-sized purchases and are designed for fast approvals and minimal friction.

Installment Loans

Installment loans provide a fixed loan amount with predictable monthly payments and defined repayment timelines. They are widely used for higher-cost services such as healthcare treatments and elective procedures, where longer terms help improve affordability.

Lines of Credit

Lines of credit offer customers access to a revolving credit amount that can be used repeatedly for eligible purchases. Unlike installment loans, balances can be carried over time and reused, with payments varying based on the amount borrowed, the outstanding balance, and the interest rate. These products are often used for ongoing or repeat expenses, but they may involve variable interest rates, minimum monthly payments, and deferred interest structures depending on the provider.

Why Businesses Are Offering Third-Party Financing

Offering third-party financing has become a powerful growth strategy for small business owners, startups, and established brands alike. Here are a few reasons it’s become so popular:

• Increase sales and conversion rates: Flexible financing options remove price as a barrier, allowing potential customers to move forward with purchases they might otherwise delay. This directly improves conversion rates and average order value.
  
• Improve cash flow and working capital: Because the financing provider pays the business upfront, companies gain immediate access to working capital without waiting on customer repayment or managing receivables.
  
• Enhance the customer experience: A streamlined financing process at checkout improves user experience and supports informed decision-making, allowing customers to choose payment plans that align with their financial situation.
  
• Build customer loyalty: When businesses offer customer financing solutions that feel transparent and accessible, they foster trust, referrals, and repeat customers over time.
  
• Expand your customer base: Flexible payment options attract new customers, including cardholders who prefer installment plans over traditional credit cards or personal loans.

Choosing the Right Third-Party Financing Partner

Not all financing partners are created equal. When evaluating third-party financing companies, businesses should consider several key factors.

• Flexible loan structures and repayment options: Offering multiple loan terms and payment structures allows customers to choose options that fit their budget while helping businesses serve a broader range of patients or buyers. Cherry offers plans from 1-60 months and loan amounts as high as $50,000 for a range of healthcare services from plastic surgery to veterinary.
• Interest rates and additional fees: Transparent interest rates, clear disclosures, and minimal additional fees are critical for protecting customer satisfaction. Cherry offers no hidden fees and true 0% APR for qualified borrowers (never deferred interest traps).
  
• Approval process and eligibility requirements: A fast approval process with flexible eligibility criteria can increase approvals without exposing the business to credit risk. Cherry has a 60-second application that doesn’t hurt credit score, and over 80% of borrowers are approved instantly.
  
• Automation and integration: Modern financing providers offer automation, payment processing integration, and point-of-sale compatibility to streamline the financing process across e-commerce and in-store environments. Cherry integrates with modern healthcare management software to streamline office workflows and monitor key performance metrics.
  
• Customer support: Strong customer support ensures that borrowers have assistance throughout repayment, reducing friction for your internal team. Cherry manages all aspects of customer support, so providers can focus on offering quality care.
  
• Compliance and trust: Working with a reputable financial institution or fintech ensures compliance with government regulations and consumer lending standards outlined by the CFPB on consumerfinance.gov.
  
• Merchant fees and overall cost to the business: Financing solutions should balance customer accessibility with sustainable costs for the business. Cherry offers the lowest merchant fees in the industry, and never charges a setup, subscription, or equipment fee.

FAQs About Third-Party Financing

How long does approval take?

Approval timelines vary by provider and loan type, but most third-party funding solutions are designed to work at the point of sale. Many offer instant or near-instant decisions after a short application, allowing customers to complete their purchase the same day. In cases where additional verification is required, approval may take a few hours or up to one business day. Once approved, funds are typically paid to the business within one to three business days, depending on the provider’s payout schedule.

Does financing affect a customer’s credit score?

It depends on the provider and how the financing is structured. Some third-party lenders use soft credit checks during pre-qualification, which don’t impact credit scores. Others may perform a hard inquiry once a customer accepts a financing offer, which can temporarily hurt their credit. Ongoing repayment behavior may also be reported to credit bureaus, meaning on-time payments can help build credit, while missed payments may have a negative impact.

What happens if customers miss payments?

When using third-party financing, the lender — not the business — handles repayment and collections. If a customer misses a payment, the third-party funder follows its own policies for late fees, reminders, and potential collections activity. This structure helps protect businesses from cash flow disruptions and administrative burden, since they receive upfront payment and aren’t responsible for managing delinquent accounts.

Is third-party financing better than an SBA loan or small business loan?

These options serve very different purposes. Third-party financing is intended to help customers pay for individual purchases, making it a sales and conversion tool. SBA loans and traditional small business loans are designed to fund business expenses like inventory, payroll, or expansion. For businesses looking to increase approval rates and average transaction size without taking on debt themselves, third-party financing is often the more appropriate solution.

Do businesses get paid up front or over time?

In most cases, businesses are paid up front by the financing provider shortly after the transaction is completed. The customer then repays the lender over time according to the agreed terms. This allows businesses to improve cash flow while offering flexible payment options to customers.

Are there fees for businesses to offer third-party financing?

Many providers charge a merchant fee or discount rate for each financed transaction (Cherry’s is the lowest in the industry). These fees vary by provider and may depend on factors like loan term length, customer approval rates, and promotional offers such as 0% financing. While there is a cost, many businesses find it is offset by higher conversion rates, larger purchase sizes, and fewer lost sales.

What types of purchases are best suited for third-party financing?

Third-party financing is most commonly used for higher-ticket or planned purchases where paying in full upfront may be a barrier. This includes healthcare services, home services like HVAC, elective procedures, major repairs, and retail purchases like furniture or electronics. It’s especially useful when customers need flexibility but the business wants to avoid managing payment plans internally.

Can customers apply before committing to a purchase?

Many financing providers allow customers to pre-qualify before making a final decision. This lets them see estimated payment options and approval amounts without committing to the purchase right away. Pre-qualification can help set expectations early and make the checkout process smoother.

Final Thoughts: A Win-Win Financing Strategy

Third-party financing is more than just a payment option. It’s a customer-centric strategy that helps businesses increase sales, improve cash flow, and deliver flexible financing without assuming unnecessary risk.

By offering third-party financing through a trusted financing partner like Cherry, businesses can streamline checkout, support customers’ needs, and stay competitive in a rapidly evolving financial services landscape.

When done right, third-party financing creates a win-win outcome: customers gain accessible financing plans, and businesses unlock growth, loyalty, and a competitive edge. Find out how Cherry could transform your business. Claim your personalized demo here.