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How to offer payment installment plans and reduce late payments

How to offer payment installment plans and reduce late payments

Offering payment plans can help to reduce late payments and give your business the opportunity to increase revenue. However, it is important not to offer payment plans without considering their impact on both your business and customers.

This blog post looks at how payment installments work, the benefits of payment plans for businesses, the benefits for customers who use them, and practical advice on how you can offer payment plan options in your own online store.

The late payment problem

Businesses are facing a late payment crisis, with late payments costing businesses in Australia alone over $19 billion every year. This is an increase from the $10 billion it cost businesses in 2015, and it's costing businesses more than ever before. In fact, poor cash flow is responsible for 90% of failures of small and medium businesses.

The late payment problem is felt by businesses globally, with 48% of all invoices issued in a given month paid late, and the World Bank predicts that late payments cost the global economy over $40billion every year. The impact of late payments can be huge, with businesses often forced to rely on debt and equity financing to keep the business running, and can also impact staff retention rates due to issues covering overheads. Bad debt can reduce a business’ ability to grow, invest in new technology or even take on new staff. It can also cause them to default on their own accounts payable, creating a spiral of financial difficulty.

In an attempt to resolve this issue, many companies waste countless hours manually following up with late payers, or write off unpaid invoices as bad debt - losing millions in the process.

There is, however, another option - offering a payment plan. 

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How offering payment plans can help reduce late payments

Payment flexibility is one of the main benefits of payment plans.

Payment plans allow businesses to tailor payments to their customers' specific needs, making it a more attractive proposition than simply asking for payment in full upfront - or continually chasing customers for an overdue invoice that they are simply unable to pay in full.

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This flexibility is especially important for companies that deal with larger value invoices, as installment agreements give you better visibility on when that cash is coming in, and can smooth out your cash flow for easier planning and forecasting.

Particularly when your clients are in a financial rough patch, offering them flexible payment plans in this time of difficulty can also help to build trust and strengthen relationships with clients. By being able to offer a payment plan that meets the customer's needs, businesses show that they are willing to work with their clients, rather than against them. This can often lead to better customer retention rates and more repeat business in the future.

Simply put, being able to offer a level of payment flexibility increases the chances of you receiving payment in full and on time because the client is more likely to be able to afford it. This can often save you time and money in chasing payment for outstanding invoices, which would otherwise have been late or not paid at all.

When to offer payment installment plans

You don't need to jump straight to offering an installment plan as soon as an invoice becomes overdue. In fact, payment plans should only be used as a last resort and offered when all other options have been exhausted.

The first step in getting any overdue invoice paid is to proactively and politely chase your customer through email reminders. If that doesn't work, the payment plan represents another option before writing off the debt or turning to debt collectors.

An example schedule for when to offer a payment plan might look like this:

  • 0-30 days overdue: polite email reminders
  • 31-60 days overdue: payment plan offered via email or phone call
  • 61+ days overdue: debt collector contacted

Some common occasions when payment installment plans could be useful are:

  • When an invoice is for a large sum of money
  • When the client has previously been late in paying their invoices
  • When the company is going through difficult times and needs to prioritise cash flow
  • When other forms of credit control have proved ineffective


If you’re ready to offer your client a payment plan, try our ‘Past-due invoice negotiations’ email template. You can send this to clients with overdue invoices to propose an installment plan, and encourage a sense of urgency by providing a response deadline in order to agree a payment plan.

Which customers to give flexible payment plans to

Flexible payment plans are not suitable for all customers and, as with any form of credit, payment plans should only be given to customers who have a good payment history. If you haven’t already, we recommend credit checking before offering your client flexibility in their repayments. Ideally, your business should be credit checking all new clients before signing them

Distinguishing good and bad payers can be a useful exercise before deciding whether to or which payment plan to offer your client. You will also want to take into account the prevailing economic conditions, as payment plans may be more or less desirable to customers depending on the state of the economy.

If you already have existing credit limits for the customer in question, it's important not to exceed those limits when offering a payment plan, as this can put your company at even greater risk.

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How to structure your payment plans

In order for payment installment plans to work, it is important that businesses set out clear terms and conditions in their contract which include:

  • When payment will begin (i.e 30 days from when the invoice was raised)
  • How much each payment will be
  • How often payments will be made
  • The total amount of payment that is required by the end of the payment plan
  • Any applicable late payment fees or interest charges

It's also important to have a collections process in place for when customers miss payment deadlines. This could involve anything from issuing a warning to suspending services or taking legal action.

Establishing your payment terms at an early stage with a client will make it easier for you, especially if they are flexible payment terms that allow some discretion in relation to accounts receivables procedures.

It is always useful to keep clients updated about late payments and to be clear about what will happen if payment is not received on time.

An example template for a payment plan structure might look something like this:

  • Day 1 - 25% of the invoice total
  • Within 30 days - Additional 25% of the invoice total (for 50% in total)
  • Within 60 days - Additional 25% of the invoice total (for 75% in total)
  • Within 60 days - Additional 25% of the invoice total (for 100% in total)

Be flexible in your payment plans, for example, offer different payment options with varying amounts and frequencies depending on the customer's needs. Offer a range between weekly, monthly or six-monthly payments to make it easier for businesses who want to spread the cost. To understand your customers’ requirements we recommend having a credit control phone call, with the aim to understand their situation and find a payment plan that’s suitable for both you and your client.

Incorporating payment plans into your accounts receivables process

If you're going to offer your customers payment plans, you need to incorporate them into your credit control policy and accounts receivable process. This will ensure that all payment plans are treated in the same way and that you're not offering preferential payment terms to some customers over others.

You also need to make sure that your accounts receivables team understands how payment plans work, so they can deal with any queries or problems that may arise. Your payment plan terms and conditions should be clear and easy to understand so that customers know what they're signing up for.

You may also want to consider including a late payment fee if payments are not made on time. This will help to discourage customers from delaying their payments. If you don't already have an accounts receivables policy in place, you can use our credit control and debt collection policy template as a starting point.

You can easily incorporate offering payment plans into your existing credit control measure by creating a ‘payment plan offer’ email template, similar to our payment follow up templates, that can be sent to trustworthy customers who have overdue accounts and that you’d like to offer payment plans. When it comes to making sure that payment plan installments are paid on time, you need to be chasing them in the same way that you would an invoice payment.

Start with an email in advance of the payment date to act as a reminder and follow up with more reminder emails if the payment isn't made. If necessary, pick up the phone and speak with customers about when you can expect the payment to be made.

Consider what your business can afford

Payment plans might represent a great opportunity to help manage your cash flow, but it’s important that you understand what payment plans will mean for your business. If payment plan installments are paid late then this could impact the amount of profit that is made at the end of the month or year which may result in a hit on your bottom line.

Use cash flow forecasts to help you work out what payment plan installments are affordable for you and your business and stick to those amounts to avoid putting your own business in danger to benefit others.

What are the benefits of offering payment plans?

There are a number of benefits associated with payment plans, including:

Increased revenue

Payment plans increase the chances of your recovering unpaid invoices, which means that you will get more of the payment owed to your business. adopting a more flexible approach to late invoices can see you recoup money that would otherwise be written off.

Offering payment plans to customers is a way of increasing your customer base and selling more products or services overall. If you offer flexible payment terms then it can be easier for your clients to pay, especially if they have been struggling financially in the past.

The payment plan installment payment option is also helpful for clients who want to purchase your products or services but are unable to pay upfront. Offering this payment method can help you get more of these customers on board and increase sales volume overall.

Increased customer satisfaction

Customers who have payment plan installments deducted from their credit or debit cards can be less likely to leave because they feel like they are paying something towards an outstanding balance with no additional effort required on their part.

This increases customer satisfaction significantly, which helps maintain long-term relationships with existing clients while increasing referrals too.

Increased customer loyalty

Showing a level of flexibility and compassion during trying economic times can help businesses maintain customer loyalty. Payment installment plans can go a long way in demonstrating this commitment and help keep your customers coming back for more.

Businesses like LoveBrands have built fantastic client relationships whilst saving time on their accounts receivables process through harnessing automated payment plans, their Payment Portal, and personalised invoice chasing.

Reduced late payments

Offering payment plan installments as an option can also reduce the number of late payments received. Late payments are not only frustrating for business owners but they also affect the bottom line. In some cases, being able to offer a payment plan may be the difference between making a profit or taking a loss on a sale.

Improved cash flow

When used correctly, payment plans can have a positive impact on a company's cash flow - ensuring that they have the money we need to cover costs and continue operating smoothly.

A payment plan can be a great option for companies that are looking to grow their customer base. It's also an effective way of targeting new customers or clients, who might not have the cash available to pay in full immediately.

Implement payment plans with ease

With Chaser, payment plans are quick and easy to set up. We've made the process as simple as possible, making it easier for businesses of all sizes to automatically offer custom payment plans, with their chosen amounts and intervals, and automatically chase installments. 

Use Chaser and create, personalise, and chase payment plans automatically for free, for 14 days (no card details required!)

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