Here’s a thought.
If you are in the retail sector and you’re concerned about dwindling sales, you may want to consider reviving a payment option we don’t hear much about anymore — layaways.
The handy dandy layaway system was quite common a few generations ago; it’s how my grandmother re-furnished her house once her children had all married and moved away. It is a method of financing the purchase of higher-ticket items or larger orders when your customers don’t have the cash up front but, given the current circumstances, prefer to steer clear of banks.
With a layaway, the customer selects the item for purchase. You pull that item off the sales floor or otherwise indicate that it is “sold.” Your customer then pays for that item over time and according to pre-disclosed terms, and they are able to receive the item from you once it is paid for.
The layaway has largely fallen into disuse over the last few decades when it became easier for consumers to qualify for credit cards. Retailers became quite happy for banks to assume the administration of consumer credit while they just sold stuff, and instant gratification became king.
Now, however, the consumer landscape has changed quite a bit. Instant gratification has become a bit less fashionable and dusting off the layaway seems like it might be a good idea.
If you want to do this, though, there are a few things you need to know. Layaway financing falls under the jurisdiction of the Federal Trade Act, which requires certain disclosures in signage or on receipts. In addition, there may be state and local laws that apply. According to the Federal Trade Commission (FTC):
Some state and local laws specifically apply to layaway purchases. When this guide was prepared, such laws existed in California, Idaho, Illinois, Massachusetts, Maryland, New York, Ohio, Rhode Island, the District of Columbia, and New York City. These laws vary widely in what they require. In addition, most states have general consumer protection laws that may apply to layaways.
What all of this stuff means for you is that it will be important for you to plan your layaway plan before you implement it. You’ll need to figure out the basics: cancellation and refund policies, payment plan terms, service charges, what becomes of the item while it is on layaway, and how you will notify the customer of anything they need to know about (like the fact that their next payment will be their last payment, or when and how to pick up the item once it is paid for).
The FTC has published a helpful (and mercifully short and easy-to-understand) guide about the legal requirements and consumer-friendly best practices recommended for layaway plans. You can find that FTC Layaway Guide online here.
Don’t assume that you have nothing to worry about just because your state is not on that list. To ensure that your layaway plan is in compliance with all the state and local laws it needs to comply with, I recommend turning to your state’s economic development department, regulatory enforcement unit or attorney general’s office.
Other resources that could offer helpful advice include SBA District Offices, Small Business Development Centers (to find the one nearest you, visit the ASBDC web site to search), or your local Chamber of Commerce.
In good times and in bad, it’s important to find creative ways that help your customers take advantage of the products and service you offer and still leaves them feeling like you care as much about their pocketbooks as you do about your own bottom line. Layaway financing makes your products affordable and, as long as you provide the relevant information up front, is almost as low-risk for you as cash-and-carry retailing.
Given the current economic climate, it’s a win-win proposition for retailers and their customers alike.
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About the Author: Dawn Rivers Baker, an award-winning small business journalist, regularly reports and analyzes small business policy and research as the editor and publisher of The MicroEnterprise Journal. She also blogs at The Journal Blog.