payment plans explained

Payment Plans Explained

In this blog post we aim to address the differences between flexible payment plans, fixed payment plans and online payment plans.

Payment Plan

Firstly what is a payment plan? Technically speaking it is a plan to pay an outstanding debt. Where the borrower agrees to pay back a certain amount of money each month to repay the debt. The borrower may be an individual or a company.  The main area of focus in this post is prepayment between an individual and the supplier of goods or services. Therefore a prepayment plan is a plan to pay a for a good or service in full before the good or services have been delivered. An example of a prepayment plan is a travel payment plan. The individual books their trip by paying a deposit and pays the remaining balance in full through a number of installments prior to travelling. This helps the traveler save and pay for a trip of a lifetime or that dream honeymoon.

Flexible Payment Plan

A flexible prepayment plans is when the individual makes a number of payment installments ranging in different value and frequency. Continuing with the above example, if it were a flexible plan the individual may agree to pay the travel company €2,000 in total over a 4 month period – €600 on month 1, €400 month 2, €400 month 3 and €600 on month 4. In fact the individual is free to choose a payment schedule that best suits them, just as long as the €2,000 is paid in full after 4 months.

Fixed Payment Plan

While a fixed prepayment plan is generally when the individual spreads payment across a number of equal value payments, generally recurring on the same date of each month. Using the above example again the traveler will pay €500 on the same date of each month for four months.

Fixed prepayment plans provide suppliers with good cash flow forecasting as they know that x amount will be paid on y date, however these plans may not be as appealing to consumers due to their rigid structure. The individual may not be 100% certain that they will have funds available to make payment on the same date every month, hence why consumers are often hesitant to sign up to direct debits.

Our advice to businesses who are keen to offer payment plans as a method of closing more sales, is to first gain an understanding whether your customer will require tight control over their payment schedule, if this is the case then a flexible plans is the way to go. People are more receptive to payment plans when they feel in control, so you can assure them of this by explaining how a flexible plan works, once they have been assured they are in control, it will be easier to you close the sale.

Online payment plans

Online payment plans are offered by online stores at the point of sale, primarily on the checkout page. The store will most likely use a website plugin that is integrated with the platform they’re using i.e Woocommerce, Magento or Shopify.  Some stores offer a third party service at the point of sale that will manage the payment plan. For example Klarna and are two credit based systems that online retailers utilize to offer buy now and pay later payment plan.

An online payment plan can also be started offline. For example a couple getting married visit a Jeweler and see a perfect set of wedding rings and pay the retailer a deposit to hold the rings until they are ready to collect them closer to their wedding day. The retailer asks the couple if they would like to setup a flexible payment plan through which they can access online 24/7 to make payment through this helps the couple budget for their wedding day and so is seen by them as a positive customer experience. While the Jeweler will also benefit by improving cash flow on the rings as the couple will now make a number of partial payments and the risk of them not collecting the rings is almost eliminated as the couple will not want to be out of pocket having part paid for the rings.

What makes a good payment plan? 

Well first off it has to be tailored to your customers needs, do they want a fixed or flexible plan. Is the plan simple for them to manage? Can they schedule payment from their credit/debit card? Can you schedule friendly reminders? Can they make payment in many different ways, online, offline, cash, card, bank transfer? Are the terms and conditions of the plan clear to the customer? With you can create simple and flexible payment plans that meet all of your customers needs. We pride ourselves on simplicity. Businesses can get up an running on in less than 10 minutes, create their first payment plan in less than a minute. If you are interested in finding out more please contact us on to schedule a demo or go ahead and setup a trail account here