You’ve completed the work or provided a product to your customer, and now you understandably want to get paid. But, what if your customer isn’t able to pay the entire lump sum right now?
Enter payment plans. They might sound risky as a business owner (you want your money, and you want it now), but you might be surprised to learn that partial payments can benefit you, your customers, and your bottom line.
A payment plan, also called an installment plan, gives customers the option to pay for a product or service over time. As the business owner, you’ll get several smaller payments instead of one large payment.
Payment plans are a form of customer financing that allow people to purchase a product or service, even if they can’t cover the total cost upfront.
Payment plans and installment plans are often thought of as synonyms, but there’s a slight difference. In most cases, with payment plans and partial payments, customers can pay whatever amount they can afford. With installment plans, customers might be required to pay a certain amount on set due dates. Both options can get you paid without the need for numerous invoices.
Here’s the short answer: No, a payment plan isn’t a loan. Loans are issued by banks, credit unions, and other financial institutions and lenders. With a payment plan, the consumer financing is coming directly from your business (and not a third party).
Only receiving part of what you’re owed can seem counterintuitive. However, payment plans can be beneficial for both you and your customers. Here’s why.
One of the top benefits of accepting partial payments is that it can boost your sales. When trying to close a sale on a costly item, the price tag can make customers second guess their purchase.
But, partial payments give them more flexibility (and, as a result, greater purchasing power) because they can make smaller payments. By introducing your payment plans at the beginning of the sale, you can encourage more customers to actually follow through on purchases.
When you offer more payment options, you show that you’re committed to a positive customer experience. That fosters greater brand loyalty and can inspire people to return for future purchases.
Want each customer to spend more? Payment plans can help. When you offer the option to break payments into smaller, more manageable installments, customers may choose to make purchases they would otherwise pass up.
Finding new customers can be tough, especially if what you sell is on the expensive side. Offering payment plans makes your products and services affordable to more customers. That broader pool of potential purchasers means you can increase your revenue.
Particularly if you set up automatic payments, payment plans ensure you have some money coming into your business regularly. That can help achieve stable and consistent cash flow and keep your business running smoothly.
The concept of partial payments and installment plans 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, your customers will follow a payment schedule and there is a set due date for when the total amount has to be paid.
The payment plan details should be outlined in a contract that you and your customer agree on, so you’re both on the same page. This also helps if you run into any problems collecting payment, especially since a majority of states have laws in place to govern payment agreement contracts.
Wondering what an installment plan looks like in practice? Here’s an example.
Jeff owns a small carpentry business. One day, a customer named 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. That’s more than she can afford right now, but she can cover $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 remaining payment to $2,102, it allows Mary to purchase her new cabinets the moment she needs them. Mary moves forward with the plan, and with her contract, she agrees to pay $175.15 each month for one year.
Installment and payment plans themselves are simple. The recordkeeping is what gets a little more complicated, as you need to be able to track payments and see how much of the total remains.
There are two main ways a business can accept partial payments and installment payments:
Doing it yourself is more cost-effective, but be aware that you’ll need to conduct credit checks, issue financing, and manage payment collections yourself. A third-party vendor will have a cost attached to it, but it’ll also take care of all of that for you—saving you time, money, and stress.
It might feel counterintuitive or even risky not to collect your money in one swing, but accepting partial payments and offering installment plans makes it easier for your customers to make large purchases.
That’s not only good news for your customers. As the business owner, that flexibility can boost your sales, increase customer loyalty, manage your cash flow, and even attract new customers—proof that the risk is worth the reward.
Call Sales: 1-877-683-3280
