Payment plans are often overlooked as a technique to boost revenue. Customers will appreciate the opportunity to improve their own cash flow when you offer payment plans. In some cases, a payment plan might be the only way a customer could afford your service. When done correctly, payment plans are a stable, predictable source of revenue for your business.
I should first mention that this advice is not targeted at any specific industry, and thus care should be taken to determine if payment plans make sense for you and your business. I should also add the disclaimer that payment plans work best with customers that you can trust, especially if the service is being delivered up front.
Depending on your business, this could mean only offering payment plans to your best customers, or those customers you have a history doing business with. When there is any doubt about whether a customer can afford your payment plan, then making the sale is probably a bad idea.
The first detail to consider when offering payment plans are the terms. How much does the payment plan cost, how long does the plan last, and how often are payments made? Ideally the total cost of the payment plan would be the same as if paying up front, however, it’s common to add an additional fee, such as an extra 10% of the cost of the service to cover the cost of not receiving your money up front, any additional processing fees, and the added risk.
Next, you need to determine the time frame for the plan. Over what time period will your customer be billed? I recommend using the total cost of the plan in determining the length. If the total cost is a small amount then a shorter time period, such as 3 months, is more appropriate. On a more expensive plan then you might allow more time to pay, usually somewhere between 6 to 12 months. Of course, this all depends on what you are trying to achieve and what makes sense for your business model.
The final component to consider is how your customer will be paying. We recommend setting up automatic billing where each payment is automatically deducted from your customer’s credit card/bank account. Automatic billing is not only easier and less risky for you, but it's also easier for your customer. You set it up once and can forget about it.
Implementing payment plans on Invoiced
Now that you know about payment plans, I want to show you how to actually set one up on Invoiced. We fully support billing your clients with payment plans. Once you set up your payment plan, we perform the automatic charges and handle all of the lifecycle emails, such as sign up confirmation, payment receipts after successful payments, and failed payment notices.
In this example we want to bill our customer for $300 every month for the next 12 months. This means we will be receiving a total amount of $3,600 over the next year from our customer.
In order to implement our payment plan we want to create a subscription in the Invoiced dashboard. Go to the Subscriptions section and click Add Subscription.
First you want to select your client or create a new one. When creating your client you have to select a collection mode. Automatic will charge your customer each time a payment is due, whereas Manual will send your customer an invoice each billing cycle using the payment terms you specify.
Once you have selected your customer it is time to select a plan. A plan is simply an amount you want to bill and how often. If you do not have any plans then click New Plan.
Once you are finished setting up your plan, click Save Plan. Plans are reusable meaning that you can subscribe more than one customer to the same plan if you will be offering the same plan in the future.
Now that our client and plan have been selected all that is left is the Start Dateand Duration. By default subscriptions run until they are canceled, by you or the client. Since we are offering a payment plan we want a Fixed Duration subscription. Once you select fixed duration you need to enter in the number of billing cycles the subscription should run for. In our example we are offering a 12 month monthly plan, so there's 12 billing cycles. After 12 months the subscription will be finished.
Finally, you can leave the quantity at 1 since we are only charging for a single subscription. Also, we assume there are not any addons, taxes, or discounts to worry about. Click Add to create the subscription.
And done! Your client has already been billed for the first payment since the start date was today. If they are on automatic collections then the first charge will happen in 1-2 hours. If there's a problem with an automatic payment then we will notify you and your customer. You can also keep track of the subscription in the dashboard at any time to see that your customer is paid up.
In summary, payment plans can open up new revenue streams for your business. Like W. Edwards Deming said, “profit in business comes from repeat customers, customers that boast about your project or service, and that bring friends with them.”