How to accept partial payments and offer installment payment plans

Payment plans are also called installment plans, but sometimes the way customers pay differs depending on the type of contract. In most cases, with payment plans and partial payments, customers can pay whatever amount they can afford. On the other hand, with installment plans, customers might be required to pay a certain amount on set due dates. Both options are great ways to get paid without the need for numerous invoices.

Is a payment plan a loan?

No, a payment plan is not a loan. However, you can think of a payment plan like a loan, as it’s a way for a consumer to get financing for a product or service. Loans are typically issued by banks, credit unions, and other financial institutions and lenders. When consumer financing comes from a business, it’s considered a payment plan or installment plan.

Installment plans often give customers more freedom to stop making payments in the event that products are defective. However, similar to a loan, if a customer cancels without cause, the company may choose to repossess the product.

Increased sales

One of the top benefits of accepting partial payments is that it can help boost sales. Partial payments give buyers more flexibility to make regular payments for an expensive purchase, such as furniture or a new appliance. When trying to close a sale on a costly item, the sticker price can make customers second guess their purchase. By introducing your payment plans at the beginning of the sale, customers might be more inclined to follow through.

Improved customer loyalty

When customers have more payment options, it can help increase the return rate. Knowing they have multiple payment options, including installment plans, customers may return for future purchases. This can help build brand and customer loyalty and give you a competitive advantage over other businesses that don’t offer those payment options.

New customers

Depending on the items or services you sell, finding new customers can be challenging, especially when what you sell is expensive. Offering payment plans can make your products and services affordable to more customers. With a broader pool of customers, you’ll be able to increase your revenue.

Improved cash flow

To accept payment plans, you can work with a third-party vendor, such as QuickBooks. This can help minimize risks: automatic payments streamline the payment process so you’ll get paid without worry. With payment plans, you can have a more stable and consistent cash flow, so your business can operate smoothly. And, third-party vendors can help you manage cash flow and calculate key metrics, such as your accounts receivable turnover ratio. Then, when you set up recurring payments, you can collect payments easily to keep your cash flow in good standing.

As you can see, there are plenty of benefits that come with accepting payment plans from customers. Accepting installment agreements and partial payments adds value to your business. It also makes paying for expensive items and services more convenient for customers and helps bolster your revenue streams—a win-win.

How do partial payments and installment payment plans work?

The concept of partial payments and installment payments is simple: customers pay a fraction of the total amount for a product or service in installments until the total amount is paid. In most cases, customers follow a payment schedule and there is a set due date for when the total amount has to be paid.

Through automatic payments, customers are able to pay for products and services over time. The installment plan details are outlined in the contract that you and your customer agree on. 

Installment plan example

Now that you know what an installment plan is and how it works, let’s put it together with an example.

Let’s say Jeff owns a small carpentry business. One day, a customer, Mary, comes in looking for new kitchen cabinets. After going over her kitchen’s details and dimensions, Jeff says it’ll cost Mary $5,000 for new cabinets. $5,000 is more than she has at the moment, but she can afford $3,000. 

So, Jeff introduces her to an installment plan, where she can pay off the remaining $2,000 over one year with a low interest rate of 5% compounded monthly. While the interest brings her total payment to $2,102, it allows Mary to purchase her new cabinets the moment she needs them. Mary gets approved for the plan, and with her contract, she agrees to pay $175.17 each month for one year.

Installment payment plan options for small businesses

There are two main ways a business can accept partial payments and installment payments: by managing installment plans within the business, or with the help of a third-party vendor. By managing payment plans yourself, you’ll be in charge of conducting credit checks, issuing financing, and managing payment collections. When using a third-party vendor, they'll make credit offers and collect payments. A benefit of third-party vendors is that they can save you both time and money and help keep you out of legal trouble.

How to accept partial payments with QuickBooks

With a QuickBooks Online subscription, setting up partial payments is easy and comes at no additional cost. To begin invoicing for partial payments, all you have to do is set up a recurring sales receipt and enter the necessary information.

Using QuickBooks Payments to accept partial payments makes it easy to collect late payments, make your products more accessible to customers, and get paid faster.

How to set up installment payment plans for your customers

Setting up an installment plan in QuickBooks is easy. Follow these steps for setting up recurring payments and you’ll be good to go:

1. Select “New+” and choose “sales receipt.”
2. Select the customer you want to bill automatically.
3. Select the product or service you want to bill them for on an ongoing basis.
4. Choose a credit card as the payment method and enter the customer’s payment details.
5. Choose “make recurring” and enter a name for your template.
6. Choose “scheduled” under the template type.
7. Enter the interval you’ll use as that customer’s payment schedule (such as weekly or monthly).
8. Enter the start date for automatic billing.
9. Enter how many times you want to charge your customer on that recurring billing schedule.
10. Save your template.
11. Have your customer sign the authorization form to give you permission to automatically charge their credit card.

The functionality of recurring payments with QuickBooks makes it easier to collect payments when needed. Depending on the payment agreement, you can collect monthly payments, quarterly payments, annual payments, or create a custom payment schedule.