How to set up payment plans for your business

Just as businesses can have cash flow issues, so too can your customers. If the things you sell are particularly expensive, a client may be unable to afford to pay the entire price all in one go. Offering payment plans to your customers can be a great way to make your product or service more affordable, and could improve your long-term profitability.

In this article, we’re going to look at:

• What are payment plans?
• Why offer plans?
• How to set up payment plans for your business
• How Countingup can help manage your payment plans

A payment plan is an agreement between you (the business) and the customer. It allows a customer to become indebted to you, and then pay off that debt over time. Having a payment plan might mean delaying the payment, or splitting the cost into smaller transactions. 

Payment plans are more common in larger purchases like cars, but some companies use them for other products and services. For example, Currys offer flexible credit on all purchases over £99, while Klarna allows customers to split transactions in Asos and other participating businesses. 

Allowing customers to pay in installments can damage your short-term cash flow, so why should you do it? There are actually several benefits to offering this kind of financial flexibility, if you can afford it. 

Payment plans make expensive purchases far more accessible for everyday people. Mobile phones, for instance, are often purchased on a contract. This kind of purchase lets a wider range of people purchase the latest model without having to break the bank. 

By offering payment plans to make your goods and services more available, you can end up improving your long-term revenue. 

If a customer is struggling to pay, offering them a flexible payment strategy can improve their perception of you and your business. The better they feel about your company, the more likely they are to become a loyal customer and bring repeat business. You may find that they even spread the word about your business to others.

On the other hand, being rigid and denying any assistance can shift their opinion to a more negative view. If a customer feels too negatively about your business, losing sales can become a possibility.

Late or lack of payment can be a major issue for business owners, and using the courts to claim the money you’re owed can be costly and exhausting. Sometimes, a customer fully expects to pay on time, but due to external circumstances, is suddenly unable to. 

Providing the option to pay in installments can make it more manageable for struggling customers. In turn, your business becomes more likely to receive payment. 

It’s important to remember that payment plans do have their drawbacks — the biggest of which is their impact on cash flow. Since the customer is not paying in full, this leaves the business to front the cost of providing the good or service until the total amount is paid. 

If your business has to deal with multiple payment plans at the same time, your business could need to front a large cost while not seeing repayment for several months. With cash flow issues being the biggest reason businesses failed in 2021, it is definitely worth being wary of allowing multiple payment plans at the same time. 

The easiest way to set up a payment plan is by invoice. You can include payment terms on your invoice, and break down the whole cost into more manageable sums. 

On this invoice, you must list the full amount to be paid. To allow for a payment plan, you can specify different amounts due on various dates. For example, a total of £500 could be listed as: 

• Instalment 1 — £200 to be paid by March 12th 
• Instalment 2 — £150 to be paid by April 12th
• Instalment 3 — £150 to be paid by May 12th

All payment plans must be agreed upon by both you and your customer. This usually means that each payment plan is specific to that individual. Once the plan has been agreed, you can set up payment.

You can collect your payment by sending out invoices at intervals that match up with the agreed plan. Your client should already have notice of when they need to pay on their initial invoice, but it’s best practice to send additional invoices specific to each instalment. This can help them be prepared and have the necessary funds ready to pay you. 

These additional invoices can act as reminders, and provide the payee with instructions on how to pay. 

Instead of waiting to get paid, you can take the money directly from your customer’s bank account — but you will need proper authorisation first. 

You can get bank authorisation directly from your customer, by getting them to sign a physical form, or approve electronically. Once you have their approval and credit card number, you can submit a payment schedule. This will automatically take a set amount on a specified day, and deposit it straight into your account. 

One of the most helpful features of the Countingup app is it’s invoicing. The app lets you send an unlimited number of fully customised invoices, with your logo attached, directly to your customers. 

Creating each invoice is really easy too, simply open the app, tap on the ‘Accounting’ tab, select ‘Sales invoices’, and then click on the plus icon. When the customer pays the invoice, the app will automatically match the payment to the correct invoice, and send you a notification that the invoice has been paid. 

If you’ve agreed for your customer to pay the same amount each month, you can duplicate the invoice to simplify the process even more. Want to see how useful the Countingup app can be for your business?

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