Last editedJan 20233 min read
The usual invoicing process involves sending an invoice to a customer requesting payment for goods and services. But what happens when the customer wants to spread their payment across multiple instalments? A split payment invoice helps account for these instalment payments. Here’s how to make a split payment invoice and why it’s useful for certain situations.
What is a split payment invoice?
A split payment invoice spreads payment for a single invoice across multiple invoices instead. The business creates an initial draft invoice, before working out a payment plan with the customer. After the terms are agreed upon by both parties, you can then split this draft invoice into a series of invoices instead. It spreads the original charges out into a series of consecutive payments on instalment. In most cases, split payment invoices are used for larger purchases that require payment plans. Most accounting and invoicing software also functions as split payment invoice software, with built-in templates to help you get started.
When should you send a split payment invoice?
Split payment invoices can be sent whenever you agree to break up a large bill into smaller payments. For example, imagine your customer places a large wholesale order that costs $80,000. They ask to spread the cost of this order across multiple billing periods, breaking it down into four payments. One option would be to issue four split invoices, each asking for an equal payment of $20,000. However, you can use the percentages of your choice. Many businesses ask for a 50% payment up front. The first split invoice would be for 50% of the total bill, or $40,000. The second could then be 30%, the third 15%, and the fourth 5% of the total to equal the full 100%.
There’s also flexibility when it comes to the timing of split payment invoices. These are often sent monthly, but you could send them in weekly increments or as part of a custom billing cycle.
How to split an invoice into two payments
To better visualise how this works, here’s a step-by-step account of how to split an invoice into two payments.
Step 1: Create a draft invoice containing the full price breakdown of the goods and services provided.
Step 2: Decide the percentages you wish to charge on each of the two split invoices. This could be 50/50, 75/25, or any other percentage that makes sense to you.
Step 3: Go into the settings section of your software and select ‘allow invoice splitting’ or the equivalent.
Step 4: Select your draft invoice document, clicking the option to ‘split invoice’ in the top bar of your document view.
Step 5: Select the invoice date, percentage, and payment terms. The invoice date is separate to the due date, although it’s usually the date that the invoice will be sent to your customer. Payment terms will dictate the due date and how the invoice will be paid.
You can then either send the first invoice to your customer on the same day, or set up dates for automatic submission within your invoicing software.
Deciding how to make a split payment invoice
In addition to percentage, invoice date, and due date, there are a few other considerations when creating your invoice.
The first relates to invoice numbers. Even though you’re using the same information from a single draft invoice, each new split invoice will require its own unique invoice number. For example, if you split Invoice ABC001 into three parts, these might be numbered as ABC002, ABC003, and ABC004. Even though ABC001 is never sent to the client, this number has already been used.
The second issue to keep in mind is how you’ll split any applicable taxes or other fees. If your invoice contains discounts, percentages off, or taxes, these must be split at the same time as the main charges. This can be complicated, which is why an automatic invoicing system can be so useful for splitting invoices.
Why should you use split payment invoice software?
There are several reasons to automate the process using split payment invoice software. The first is that you will have a choice of professional templates to choose from. Customise these with your own branding and contact details. You’ll also be able to store client contact information, making it easy to generate recurring invoices with a single click. The best software sends automatic notifications, so you know exactly when your invoices have been issued and sent.
When comparing invoicing software options, you should also consider third-party integrations. Options like Xero and Zuorapartner with GoCardless for a joined-up invoice and billing workflow. Automatically send invoices and reduce late payments with quick and easy payments from your customers. You can arrange to take recurring payments with predefined percentages using our direct debit solution, eliminating any uncertainty.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.