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What are instalment payments?

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedMar 20222 min read

As a business or freelancer, working out how you will accept payments from your clients is an essential part of building your business plan. Not only do you need to think about the different payment methods that you will take, but you should also consider the different financing options you can provide to help customers purchase products or services.

Offering the possibility to pay in instalments can benefit both businesses and customers. Not only can it help you to bring in sales and regulate cash flow, but it’s also a good way to improve your customer satisfaction. Keep reading to find out more about what is instalment payment, what is tax instalment payment, and how these can affect your business.

What is the definition of instalment payment?

Instalment payments refer to any bill that a customer pays off in smaller amounts over a pre-determined period of time.

There are various different types of instalment payments:

Instalment sales, which are an agreement between the customer and the seller. Precise payment terms will be agreed, with due dates and a clear end date. This is common for large purchases, such as for cars.
Instalment loans, such as a mortgage loan from the bank. This is when a loan is taken out and paid back in instalments, generally with interest.
Instalment debt, which refers to any payment of debt in smaller instalments. If you’re wondering “what is tax instalment payment?”, then this is a form of instalment debt

Example of instalment payment

A good way to understand the benefits is by looking at an example of instalment payment. Probably one of the most common types is auto loans, which are typically repaid in instalments over several years. Those with longer terms will typically have lower monthly payments and higher interest rates.

Another common example is a mortgage, which is generally repaid over a much longer term of around 15 to 30 years. These usually come with fixed interest rates that do not change, meaning that monthly payments usually remain stable.

Advantages of instalment payments

Now that we’ve covered the instalment payment definition, what are the advantages of offering instalment payments to your customers?

First of all, taking instalment payments can create a healthy cash flow for your business. Instalments mean that you will be taking regular income from your customers, which is a good way to ensure that you always have enough cash for your essential business operations. By spreading your income like this, you avoid issues with cash flow.

In addition, offering this flexibility to your customers is a great way to boost sales. Many customers who would otherwise be unable to make a purchase can buy a product thanks to instalment payments. For example, many customers are unable to pay for a car upfront, but will be willing to purchase one when they are offered more manageable monthly instalments.

Using GoCardless for instalments

It’s easy to collect instalment payments from your customers when you use GoCardless as a direct debit solution. Customers simply have to do a one-time set up where they provide payment details and authorization, and then payments will automatically be collected on the due date, meaning you won’t have to chase up late payments.

There are other unique features that make GoCardless a great solution for collecting all kinds of payments. For example, Success+ is GoCardless’ intelligent retries tool, which automatically tries to take payments again if the payment failed. Success+ manages to collect around 76% of payments that initially fail.

In addition, GoCardless can be integrated with over 200+ major software partners such as Xero, Chargebee, and Zuora, making your accounting simpler. You could also use partner Klarna to offer customers interest-free instalment payments, encouraging them to make purchases that they would otherwise not.

We can help

GoCardless helps you automate payment collection via ACH debit, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.