What Are Instalment Payments?

With the rapid expansion of global e-commerce, businesses have recognised the growing need for diversified and flexible payment methods. One such method gaining widespread popularity is instalment payments, an alternative payment method (APM). Alternative payment methods, or APMs as they are often referred to, represent a significant departure from traditional credit and debit card transactions. They are designed to appeal to consumers’ varying preferences and encompass a range of innovative solutions, including digital wallets, mobile payments, e-invoices, and bank transfers. Instalment payments, or Buy Now, Pay Later, also fall under this umbrella.

Instalment payments are a payment plan arranged between a buyer and seller, where the borrower repays the costs of goods in staggered, equal repayments. The repayment plans vary depending on the service provider and can be paid conveniently through recurring payments set up as a direct debit by debit card or credit card.

The option to pay in instalments is helpful for businesses trying to widen their target markets, particularly younger consumers. Nearly 6 in 10 younger consumers use instalment plans to reduce financial pressure. The payment method caters to customers who want to manage spending or are less likely to be able to afford expensive purchases. Global Buy Now, Pay Later transactions are predicted to increase by nearly 450 billion USD between 2021 and 2026. This strategy provides consumers with more control over their financial management and substantially benefits businesses by boosting sales, increasing average order values, and enhancing customer loyalty. Let’s delve deeper into this discussion.

What is an instalment payment?

An instalment payment forms a part of a more significant financial obligation that is remitted periodically over a set timeline to help consumers spread the cost. The popular payment method currently has around 360 million users. A typical example of using instalment payments for purchases is with clothing and big purchases and higher value items, which borrowers are unable to afford the total amount on a credit card. The borrower can then agree to repay a business by paying for their purchase in regular payments. And so, consumers can make needed purchases with brands of their choice whilst also managing their money efficiently.

Instalment payments belong to the Buy Now Pay Later (BNPL) category, a sector offering alternatives to immediate total payments. The cost of the product/service is associated with a loan amount, and the customer pays multiple pre-agreed payments when purchasing. This approach allows consumers the flexibility to acquire products or services instantly yet disburse the payment over a predetermined duration. This arrangement divides the total expenditure into smaller, equal portions, often repaid every 28 days. Hence, instalment payments offer an easy pathway to high-ticket items without burdening customers with upfront financial strain. This system could lead to more widespread adoption of your products or services, thereby increasing sales opportunities. With a proper understanding of how instalment payments function, businesses can offer various payment options, enhancing customer satisfaction and retention.

What are the different instalment payment types?

Pay later: The value of the purchase cost is delayed entirely for a period of time (usually around 15-45 days) and then repaid in full.

Instalment loans: Customers receive a loan from a third-party provider to make their purchase in whole and repay the loan in instalments with added interest. The interest rate can vary greatly depending on the provider. The repayment time is longer than other instalment payments, spanning numerous months or years. Instalment loans are dependent on the customer’s credit rating, with those with good credit generally being offered lower interest rates.

Instalment sales: A popular payment method in the e-commerce world, instalment sales are an agreement between a customer and merchant to split the cost of a purchase into three or four small instalments made in regular payments.

How do instalment payments work?

The initiation of instalment payments is triggered by a customer’s choice at the checkout stage. The purchase amount is split into equated instalments to be settled over a mutually agreed duration. Following this, the customer must adhere to the outlined payment schedule but can repay the loan early if desired. While certain businesses may levy interest or additional fees, many have gravitated towards interest-free instalment payments to stimulate sales. Nevertheless, it’s paramount that companies make these financial implications transparent to the customer, thus fostering trust and maintaining a robust customer-business relationship.

Instalment payment plans

Instalment payment plans provide a clear framework for both businesses and consumers. They outline the total purchase cost, the amount each instalment will constitute, and the timeline for repayment. Each plan is designed with flexibility in mind to cater to the diverse financial capacities of individual customers. The frequency of repayments can range from weekly, fortnightly, to monthly instalments, thereby granting customers a certain degree of autonomy in managing their financial obligations. As businesses formulate these plans, ensuring they’re fair, manageable and transparent is essential. It’s also advisable to offer several options to meet your clientele’s varied needs and preferences. This flexibility can augment customer satisfaction, promote loyalty, and improve retention rates while maintaining a steady cash flow for the business.

How repayments work

Repaying instalment payments is typically structured around automated deductions carried out from a payment method selected by the customer. This automated process helps ensure a smooth and timely repayment, eliminating the stress of remembering due dates. However, there can be instances where a customer might miss a scheduled payment. It’s a scenario businesses should be prepared for, and they often have contingency plans to handle such situations. These include implementing late fees or temporarily restricting the customer’s ability to make further purchases until the outstanding payment is settled. It’s integral for businesses to have clear policies in place and communicate these effectively to customers to foster understanding and trust.

Pros and cons of offering instalment payments for businesses

The decision to incorporate instalment payments should be guided by a balanced consideration of its merits and pitfalls. Additionally, instalment payments can drive up sales volumes, lead to higher average purchase values, and foster customer loyalty by meeting their demand for payment flexibility. These can result in a consistent revenue stream, fortifying the business’s financial stability.

• Increased sales: Instalment payments can boost the average order total, promote brand loyalty, improve customer conversion rates and lead to repeat purchases.
• Improve customer experience: Instalment payments offer customers a better shopping experience and can often be set up quickly to minimise cart abandonment. The financial flexibility gives customers the choice to budget easily and improves their purchasing power.
• Attracts new customers: Offering instalment payments as a payment method can differentiate a business from its competitors and attract customers who value the flexibility of payment plans.
• Regulates cash flow: BNPL payments can be collected in full from the provider, removing the payment settlement time, and boosting business cash flow.

Benefits for your customers

Some benefits for the customer include:

• Keeping track of your finances
• Improves spending power
• Keeping to your budget
• Low monthly payments
• Convenient shopping.

Accepting instalment payments for your e-commerce business

Instalment payments can benefit your digital commerce, and Unlimit is on hand to help you offer this method to your customers. From instalment payments and recurring payments to one-click payments and payment links – our unified payments solution brings a payment experience suited to you and your customers.

Explore our comprehensive selection of payment methods to learn more about the choices available to your business, wherever you are in the world.