Offering payment and installment plans as a small business: Benefits + how they work

Debit cards, credit cards, cash, money orders, checks, instant deposit, and online payments—these are just some of the payment options available at checkout today. However, as digital commerce continues to evolve, so do payment options. One payment option that’s becoming increasingly popular today is a payment plan.

As a business owner, offering payment plans may sound risky, especially if you’re concerned that a customer may be unable to meet their payments. In this post, we’ll go over payment plans and installment plans, explain how to accept partial payments, discuss the benefits of installment plans, and more.

Jump to:

• What are payment plans?
• Payment plans vs. installment plans
• Benefits of using installment & payment plans
• Drawbacks of using installment & payment plans
• How to offer payment plans
• Installment plans vs. other payment options for small businesses: Differences and similarities
• Can I accept partial payments with QuickBooks?
• Are partial payment plans right for your small business?

What are payment plans?

Payment plans allow customers and cardholders to make partial payments over time until they pay off the full amount. Here are the details:

• Typically, there is a minimum payment amount owed each week or month, but customers are free to choose how much they pay as long as they satisfy the minimum.
• Payment plans don’t usually have set deadlines. Customers can choose the payment amounts and also control the payoff date. This is comparable to paying off the balance on a credit card. 

Payment plan example

With some payment plans, customers get a set limit, but they're free to use as much of that credit as they choose. They can also choose how much of their balance to pay off each month, as long as they meet the minimum requirement. 

This is an example of a variable payment plan. It has no cutoff date, and customers won't owe any penalty for early payment.

Payment plans vs. installment plans

Payment and installment plans are not synonymous, although they have similarities.

Both payment plans and installment plans allow customers to pay off their balance over time. However, payment plans offer the customer flexibility when choosing the payment amounts and the payoff date. Installment plans are preset, so the payments and payoff dates are predetermined.

Understanding installment plans

Installment plans also allow partial payments over time, but are less flexible and usually more favorable to business owners due to their setup. Here are the details: 

• Installment plans divide the total amount into equal installments, usually between 4 and 12.
• The customer needs to meet a flat rate per payment to avoid fees.
• The customer also needs to make payments on set deadlines to avoid fees. 

There are many benefits of payment and installment plans, such as allowing customers to pay for what they can afford at the moment and improving your cash flow by accepting a partial payment upfront.

Installment plan example

If you need to purchase office equipment like desk chairs, some businesses will look to rent-to-own stores to make the purchase. Here, you will select your purchase, and they will split the price (plus taxes and fees) over a set period. 

You will get a predetermined payoff date and set rates for each installment.

Benefits of using installment & payment plans

Partial payments have many useful benefits for both retailers and their customers. With more payment options, customers have more buying power, which can boost sales. 

Here are some of the reasons why retailers should consider using installment plans:

• Increases sales
• Enhances customer loyalty
• Attracts new customers
• Improves cash flow

If you’re ready to start offering payment plans, make sure you have a policy in place. Check out our ready-to-customize policy template that outlines the terms and conditions of your payment or installment plans. Designed to help you stay organized, transparent, and legally protected when offering partial payments directly to customers.

Increase 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.

Enhance 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. 

Attract 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 can increase your revenue. 

Improve cash flow

With payment plans, you can have a more stable and consistent cash flow, so your business can operate smoothly. Additionally, third-party vendors can help you manage cash flow and calculate key metrics, like your accounts receivable turnover ratio. Then, when you set up recurring payments, you can easily collect them to keep your cash flow in good standing. 

Drawbacks of using installment & payment plans

Though installment plans have benefits, there are some drawbacks as well. Here are some things to consider before implementing partial payment plans: 

• Higher fees: Partial payment plans typically charge customer and merchant fees and can be much higher than traditional payment methods. 
• Integration issues: Fully integrating installment plan methods into your normal online checkout process can be time-consuming and expensive.
• Qualification challenges: Some businesses may not be able to implement installment payment plans if they don’t meet the requirements to qualify for this payment method. 
• Consumer debt: Payment plans can encourage customers to purchase something they can’t afford, which can lead to financial troubles and a hit to their credit score if they can't make payments on time. 

How to offer payment plans

There are a number of ways to optimize your offering of partial payments to customers. Depending on the software you use for payment, you may already be able to offer this benefit. If this isn’t already in place, you should follow the four steps below.

1. Determine eligible products and services

Are you only going to offer partial payment plans for certain products or services? For example, you may decide that only orders over $100 are eligible. 

Predetermine your criteria and consider all of your options, such as:

• Popular store items
• Incentivizing customers to increase their order
• Ease of breaking a price into smaller portions

2. Choose a program type

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. 

• Self-management: By managing payment plans yourself, you’ll be in charge of conducting credit checks, issuing financing, and managing payment collections. 
• Third-party management: By 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.

3. Decide on the invoicing frequency

You have complete control over the invoicing frequency. As a business owner, the more cash you can rake in each month, the better. You don’t want to have outstanding balances for too long and risk having to cover the missing capital. 

However, you also want to allow breathing room for payments from your customers, seeing as that’s the main draw of partial payments. Many businesses choose a monthly payment plan, whereas others place it on a weekly schedule. 

AI agents can also help you pick the best invoicing schedule. QuickBooks’ AI tools analyze customer payment habits and cash flow trends to recommend when to invoice and send reminders—so you get paid faster without extra work.

4. Set up recurring payments

Within your payment processor, set up recurring payments specific to each customer. You’ll need the customer’s:

• Name
• Phone number
• Linked account or credit card

After you’ve set them up in your system, all payments moving forward should come from their linked account or credit card.

Installment plans vs. other payment options for small businesses: Differences and similarities

There are many forms of partial payments and many ways to accept partial payments from customers. While we’ve focused on payment and installment plans, some may get confused when it comes to their comparison to other payment methods. Such as:

• Loans
• Buy-now-pay-later
• Consumer financing

Below, we’ll cover the questions regarding these payment methods, plus their comparisons and differences.

Payments or installments vs. buy-now-pay-later

Buy-now-pay-later (BNPL) services—like Klarna, Affirm, or Afterpay—are technically a type of installment plan. However, there are key differences between offering installment plans directly to your customers and using a third-party BNPL provider.

What they have in common: 

Both options let customers break up the total cost of a purchase into smaller payments over time. This can make it easier for them to afford higher-ticket items, which may help boost your sales.

Bottom line: Offering in-house payment plans gives you more control and may reduce fees, but it also means taking on more administrative work and risk. BNPL services may simplify the process for you, but they come at a cost.

Customer financing vs. payment plans

Customer financing is the same as payment and installment plans. It's another way of saying you offer partial payments to your customers, either through in-house financing or a third-party company.

Payment plans vs. loans

Loans are typically issued by banks, credit unions, and other financial institutions and lenders. On the other hand, a payment plan or installment plan involves a business offering financing to its customers.

Can I accept partial payments with QuickBooks?

QuickBooks offers two ways to offer your customers partial payments: QuickBooks Online and QuickBooks Payments.

QuickBooks Online: A subscription-based online accounting solution that gives you the freedom to set up recurring sales receipts and enter the necessary information.

QuickBooks Payments: A payment processing service that also allows you to set up recurring payments for customers.

Are partial payment plans right for your small business?

Payment plans are becoming a more popular payment option for both large and small businesses. Accepting partial payments and offering installment plans makes it easier for customers to make larger purchases.

In turn, companies can boost sales, increase customer loyalty, and attract new customers. With a small business payment acceptance solution like QuickBooks Payments, you can set up recurring payment plans and adjust the payment agreement schedule to meet your customers’ needs.