Partial payment

In its simplest terms, a partial payment is the payment of an asset or service in installments, chunks or portions - ranging from two to many payments.

The term installment payment is often used before any purchase of a product or service - and thus often when a buyer and seller(debtor and creditor) have agreed prior to the purchase that the purchase can be made with the help of installments. The term installment plan is often used when a payment has failed - and thus installment plans are often used in connection with debt collection.

Basically, the words installment plan and installment payment are two sides of the same coin and are synonymous with each other; payments that are made in installments.

What is the benefit of a partial payment?

There are benefits for both you as a business and for your customers by offering partial payments.

Partial payments make acquiring a product or service easy, manageable and affordable - making it possible for people who don't have the full amount for your product to purchase it.

As a result, your business often gains additional sales by offering installment payments, as the target group for your product is expanded.

If the company chooses to offer partial payment through a financing company, the company will often receive the full amount upon delivery of the product - while the financing company takes over the debt/partial payment, and installments must then be made accordingly.

What are the disadvantages of installment payments?

As a business, there are several things you need to be aware of if you choose to sell your goods or services via partial payment.

Firstly, all credit and loans come with a risk of non-payment - and the longer your installment extends, the greater the risk that the buyer's financial situation changes, which could mean one or more installments are missed or delayed.

Besides the risk of non-payment, one of the obvious disadvantages of partial payment is of course also the shift in your cash flow - because often you have purchased the item at full price without installments or loans, and a partial payment will, all other things being equal, postpone the time from when you purchased the item until it is fully paid by the customer.

Partial payments will also cause the company extra administration in managing and following up on whether the individual partial payments actually arrive at the agreed time.

However, the company can ally itself with a bank, lender or finance company, for example, which takes over the risk and the individual installments - and which often pays the full principal to the company when the goods are delivered to the customer.

By outsourcing or selling your installment plan to an external supplier, you can reduce virtually all major drawbacks of having installment plans: liquidity, administration and risk.