Last editedAug 20222 min read
Merchants taking higher-value transactions are likely to benefit from being able to offer their customers split payments. This can be done through buy-now-pay-later (BNPL) services such as Klarna. Alternatively, merchants can manage their own split payments, generally with the help of software and/or services such as GoCardless.
The benefits of split payments
The headline benefit of split payments is that they make it easier for customers to pay. This can make it easier for merchants to close sales. It can also make it easier for merchants to deal with arrears. In the real world, showing flexibility and a soft touch often gets results more quickly and easily than bringing down the hammer.
The drawbacks of split payments
Offering split payments does have two potential drawbacks. With that said, in reality, they are more likely to be theoretical than practical.
The first potential drawback is that offering split payments may delay your payment. Technically this is true. In reality, however, offering split payments often allows merchants to gain income they would otherwise have missed.
The second potential drawback is the need to manage the split payments. In reality, however, this is generally a minor issue. If merchants sign up for a BNPL service such as Klarna, they just need to follow their provider’s onboarding process. After that, their service provider will take care of the logistics.
Even if merchants opt to manage the process themselves, it can still be very straightforward. For example, the GoCardless dashboard is designed to be easy to use. GoCardless can also be integrated with partner software (for example, Xero). Many accounting packages also have the facility to manage split payments.
Split payments and the law
In general, any firm offering any form of consumer credit must be FCA-authorised. It is, however, possible to offer split payments without FCA authorisation provided that you meet the relevant criteria. The key points to note are:
The agreement must be for a maximum of 12 instalments over a maximum of 12 months
It must be for a specific purchase and cannot be a conditional sale, HP agreement, pawn agreement or relate to the purchase of land
It must be for a fixed amount
No interest or charges can be levied
The vast majority of merchants wanting to offer split payments will meet all of these criteria.
Offering split payments through a BNPL service
The advantage of offering split payments through a BNPL service is that it offers maximum convenience. You just choose your provider, sign up and add their functionality to your checkout (online or real world). The BNPL service takes care of everything else for you.
You may also benefit from the BNPL provider’s brand recognition. This could be particularly useful for smaller ecommerce merchants looking to establish credibility and trust. If this is important to you, it’s advisable to partner with a BNPL firm that consumers are likely to recognise, such as Klarna.
There are, however, three potential drawbacks of using a BNPL service. Firstly, it will probably require you to offer the option of split payments to all your customers. Secondly, it will limit your ability to customise instalment plans to your customers’ exact requirements.
Thirdly, it will probably cost more than managing your split payments yourself. This can be particularly true if you’re only making occasional use of split payments, for example, to collect arrears.
Offering split payments directly
Offering split payments directly can avoid your business incurring extra costs. It can be straightforward to do using a bank payments solution like GoCardless, which allows you to easily set up and edit recurring payment plans for your customers, as well as allowing you to receive the full amount in one go if the customer prefers.
We can help
If you’re interested in finding out more about how to offer split payments, then get in touch with our financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.