Payment plans are an effective way to make sure you get paid, and can show customers you wish to keep doing business with them. However, payment plans can easily get off track if you are not careful. Here are some things to keep in mind.
Make it easy for people to pay you.
It is important to figure out which method(s) of payment work for your customers. Ask them. Consider using both “old” and “new” school payments. Old school method of payments of payment might mean that you send an envelope with your bills so that customers can send you a check.
New school methods would be more “green”, i.e. paperless, using on online payment portal. I pay my electric bill with two mouse clicks, and it is always paid immediately, because paying the bill is so easy.
Document payment plans.
While oral contracts are legal in many states, unless you put your payment arrangements in writing, you leave yourself open to interpretation. Be clear on details: how much, when, how to be paid, where to be paid, and so forth. The best way to memorialize a payment plan is with a promissory note. If you do not have time to execute a promissory note for every plan, then put together a form and have them on hand. You can also send details in an email. Just make sure you get a written or electronic signature. Remember that a payment plan is a sort of contract, and a contract is bilateral, meaning both sides must agree. If you do not have written confirmation of a plan, you do not have a written plan.
Require customers to have some skin in the game
Payment plans are a privilege you extend to customers. You do not have to accept payments, you choose to do it. So, you dictate the terms. Take a payment to initiate a payment plan. Customers with skin in the game are more likely to respect the plan and stick with it.
Whenever possible, set up automatic payment plans
Payments that can be processed automatically are easy for you and for your customer.
Set up plans on or around pay days.
The best way to make sure a customer has funds is to set up payments when you know funds will be available.
Always keep the door open for lump sum payments.
At tax time, or after a birthday or special event, you may be able to convince a customer to pay you in a lump sum. Let customers know this every once in a while. You may have to take a little less money, but you will not have to wait for it.
Credit cards and banks would never give interest free loans. You should not do it either. Remember though, that customers must agree in advance in writing to finance charges, so make sure it is included in your initial written agreement. You do not have to charge a very high rate, but customers will be encouraged to stay on track if they know interest is accruing. I often promise to waive finance charges at the end if all payments are made on time, and it has proven to be incentive to do just that.
Let customers know what happens if they do not stay on plan.
You have the right to cancel a plan if payments are not made as promised. Once again, documentation is everything, so put it in writing!