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When a customer is hesitant to make a big purchase, offering an installment payment plan might be the deciding factor. They can increase revenue and improve cash flow – but setting up customer payment plans can be a daunting prospect for small businesses. So, should you offer a payment plan to customers? We’ll discuss the benefits and logistics below.
What are customer payment plans?
A customer payment plan describes an agreement between the business and customer. It allows the customer to break down a larger purchase into smaller installment payments over time. This might be used in advance to buy a big-ticket product or service. Customer payment plans can also be put into place after the purchase has concluded, when a buyer is having difficulty paying a large invoice.
Can I offer my customers a payment plan?
Yes, and there are distinct advantages to offering customers a payment plan. While in the past it may have been a hassle to set up and collect installment payments, tools like automated invoicing software and buy now pay later (BNPL) services make it far easier to put in place.
There are numerous reasons to consider offering payment plans to your customers.
They strengthen the business-customer relationship by giving flexible payment options with an element of trust.
They increase revenue by encouraging customers to make more expensive, big-ticket and luxury purchases they wouldn’t be able to afford with a single lump payment.
They improve cash flow by ensuring a steady stream of small installment payments over time, for predictable income.
They reduce missed or failed payments. If a customer is having difficulty paying their bills, working with them to create a payment plan helps prevent a costly, time-consuming collections process.
How to offer payment plans to customers
If the benefits outlined above make sense for your business, the next step is determining how to offer payment plans to customers. Specifics will vary depending on your industry, products, and business size. To get started, you’ll need to draw up the payment plan:
Number of installments
Installment due dates
Terms and conditions
You can find a customer payment plan template in most accounting software. A standard invoice template will also work. Fill out the invoice with the services rendered and total amount due. For payment, list each installment alongside its amount and due date.
It’s important to communicate with the customer to make sure the payment plan works for them. Once the plan is approved, consider setting up automatic invoicing to collect payments as they’re due. Alternately, agree upon a payment method and send email reminders to the customer as each installment is due.
What are BNPL payment plans?
The buy now pay later (BNPL) payment method is an increasingly popular way for customers to pay for their purchases in a series of installments. Using a BNPL service like Klarna or Afterpay takes the guesswork out of creating customer payment plans, because these payments are handled by a third-party provider instead.
If you don’t want to deal with installment payment plans yourself, BNPL providers set up the agreements, collect payments, and handle late or missing payments instead. GoCardless integrates with BNPL providers like Klarna, leveraging Direct Debit to collect payment installments directly from customer bank accounts. This ensures a quick and easy set-up for the customer and business alike.
The bottom line
Whether you opt for a BNPL provider or use your own customer payment plan template, it’s rarely a bad idea to give your customers more flexibility. This type of installment agreement can increase customer satisfaction and goodwill, encouraging your customers to make more purchases over time. Just be clear about all payment terms and conditions to avoid confusion, and you’ll benefit from steady cash flow.
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. It's easy to collect recurring payments from your customers - simply set up a mandate with them, and you both enjoy flexible, safe payment collection. It's perfect for offering your customers installment payments, without needing to use an additional third party provider.