Installment payment

The term "installment" refers to paying off a purchase or debt, for example in equal installments over a shorter or longer period.

As the products we surround ourselves with become more expensive, the demand for installment payments is increasing. Today, you can pay off everything from white goods to cell phones.

Common to many installment plans is that you become the owner of the product at the end of the installment period, as opposed to a loan or lease, where you do not necessarily own the product after the lease period.

Benefits of installment payments

Many products today are far more expensive than they were just 5 or 10 years ago, such as cell phones, white goods and other consumer electronics.

This can often limit the sales of a product, which can lead to decreased revenue for the company.

By offering installment payments to the customer, the store can maintain its turnover while the customer has the option to pay off the payment over a shorter or longer period.

Disadvantages of installment payments

All things being equal, installment payments mean more administration for the company, as there is a need to follow up on whether the customer has paid the agreed amount each month and to take action if payment is not received.

Desuden betyder afbetaling, at virksomheden ikke får den fulde indtjening fra salget med det samme, hvilket kan have en negativ indflydelse på virksomhedens cashflow og likviditet.

Finally, installment payments involve the risk that the customer may not pay all or part of their installments.

Transfer of installment plans

Historically, installment plans have been a disadvantage for businesses because while installment payments could increase sales, it also meant increased administration and a negative impact on cash flow as the company had to wait for payment.

Today, however, many banks, lenders and the like offer to take over the administration (and risk) of installment payments for the company. This means that the company can offer installment plans on products, such as a mobile phone, over 6 or 12 months and receive the full amount when the installment plan is transferred to the bank or lender.

In this way, the company avoids both the administration and the risk of installment payments. At the same time, the company receives the full amount for the product at the time of sale.

The bank or lender then makes money on interest and other costs.

Paying off debt

Installment payments are not only used when selling new products. It's also a common method for settling debts, especially if the debt has been handed over for collection.

If the customer is unable to pay the full amount at once, many creditors, debt collectors and lawyers offer debtors the option to pay off the amount through an installment plan.

As such, installment payments and installment plans can be useful tools in debt collection processes as they make it easier for the debtor to pay the amount - to the benefit of the debtor, the creditor and the creditor's debt collection agency.