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Have you ever considered giving your customers the ability to pay in instalments, rather than up-front? With alternative payment methods becoming increasingly mainstream, online payment instalment is becoming more and more widespread among e-commerce companies. Find out everything you need to know about payment by instalments, starting with our overview of the meaning of payment in instalments.
Payment in instalments meaning
So, what do we mean by “payment by instalments”? Essentially, it refers to a payment strategy wherein you allow the buyer to make a series of payments – spread out over the course of an agreed period of time – rather than a lump sum. For example, if you run a computing and electronics online store, chances are that a significant proportion of your products are high value. Rather than enforcing a rigid payment strategy, allowing payment by instalments could give your customers the opportunity to break down this sizeable cost into more manageable payments.
What is the benefit of allowing online payment instalments?
For customers, the benefits of online payment instalments are obvious. It gives them the chance to choose how and when to pay while increasing their spending power and financial control. In short, it makes expensive items more affordable for customers who would otherwise be priced out. Plus, online payment instalment can help you to acquire more customers. Online shoppers expect alternative payment methods and the convenience associated with the ability to pay by instalments. If you’re not offering that level of flexibility, there’s a good chance that your competitors are.
Downsides to offering a payment by instalments agreement
Although online payment instalments provide you with access to a larger customer base, there are a couple of downsides to consider. Firstly, your business will take on an increased level of risk. There’s always a chance that a customer will experience financial hardship and won’t be able to make payment. While you can charge interest to alleviate the risk, it’s simply not worth the hassle for many businesses.
It’s also important to note that receiving payment by instalments may take up more of your time than other forms of payment, as you may need to send separate, recurring invoices. This is an admin-heavy task and may overcomplicate the invoicing process for your accounts receivable team. However, there is a simpler option.
Online payment instalment through GoCardless
Want to give your customers the opportunity to pay in instalments? This is now possible with GoCardless for Xero. Simply use the Instalments feature in GoCardless for Xero to split up a single Xero invoice amount into several GoCardless payments. You’ll have the flexibility to customise the number of instalments and the frequency of collections and once set up, your invoice status will update to show how many outstanding instalments are left.
What’s the difference between subscriptions and payment by instalments?
Although subscriptions and payment by instalments may appear relatively similar, at least on the face of it, there’s actually a pretty significant difference between the two terms. Although both involve a series of payments, rather than a lump sum, subscribers will never actually own the product, because they aren’t purchasing it. Instead, they’re making regular payments to lease the product/service from you. If you allow your customers to pay in instalments, on the other hand, the buyer will eventually own the product, as they’re simply splitting up the payment into more manageable chunks.
We can help
GoCardless helps you automate payment collection, 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.