Partial pay refers to a payment that is less than the full amount owed. This typically occurs when purchased goods or services are paid for over time.
Partial pay is sometimes called a part payment, a down payment, upfront payment, or an installment payment.
Examples of agreements allowing partial pay include:
- Real Estate Purchase. The buyer’s down payment is a partial payment of the purchase price. The remaining balance is due when the property sale closes.
- Installment Account. These accounts allow for goods or services to be delivered with a partial payment. For example, a car loan exchanges a car for a promise of partial payments over time.
- Revolving Account. These accounts allow a buyer to purchase a good or service in exchange for a promise of repayment to a third party. For example, credit cards allow a buyer to make a purchase and later repay the credit card company.
- Business Mergers and Acquisitions. Partial payment is often offered by a buyer to show good faith while a merger or acquisition is finalized.
- Service Agreements. A buyer may make a partial payment for a service upfront. The remainder is then paid when the service is completed.
Benefits of Partial Pay
Partial pay benefits customers by allowing access to goods before payment is made in full. Customers may also secure services without handing over full payment before the service is complete.
Businesses benefit from partial pay by increasing their customer’s ability to make purchases. Offering partial pay also means that the business benefits by receiving a partial payment at the start of a project. This improves cash flow and helps secure the customer’s dedication to seeing the project completed.
Businesses that offer financing agreements such as installment accounts can also benefit by collecting interest on partial payments.
How To Invoice Partial Pay
When you are creating a partial pay invoice, you will need to clarify how you will accept payment. Terms commonly used to set payment terms include:
- Net 30. The customer has 30 days to pay the amount due.
- 50% deposit, balance due on delivery. The customer will pay a 50% deposit upfront, and the remainder on delivery of the goods or completion of the service. This is sometimes also invoiced as “50/50.”
- 30% deposit, balance payable in 15 days. The customer will pay a 30% deposit upfront, then pay the remainder in 15 days.
- Monthly payment due on the 15th of each month. The customer will pay an agreed amount each month until paid in full.
- Remaining balance due in 60 days. The customer will pay the purchase price minus their initial payment or deposit in 60 days.
- 3% 10 Net 30. The customer will receive a discount of 3% if they pay the full amount due within 10 days. Otherwise, the full amount without discount is due in 30 days.
- Contra payment. This allows the customer to make payments in the form of goods or services instead of cash.
The amount of any deposit and terms for when full payment is due will depend upon what you agree to with the customer.
Are Partial Payments Late Payments?
Partial pay will not be considered late if the payment meets what was agreed to by the business and the customer. For example, making a minimum payment on an installment account by the monthly due date is not a late payment. The full amount does not have to be paid when both sides have agreed to accept partial payments.
A partial payment that does not meet the agreed terms on time is considered late. For instance, when the monthly payment on an installment account was less than the agreed amount. In this case, the difference between what was paid and what was due is now late.
Failing to make a partial payment on time can lead to issues for both the business and the customer. Customers may be subject to late fees, interest rate increases, poor credit marks, service disruption, or repossession of goods. Businesses that don’t receive payment as agreed might be unable to pay bills or complete services.
Your business should have clear terms on your invoice and a plan for how to communicate with customers who don’t make timely payments. The plan should begin with simple outreach or reminders. Eventually, you may need to involve professional credit collectors or stop work on outstanding projects until payments are made.
When a customer wishes to pay in full before the full amount is due and the business or creditor does not collect the outstanding interest, this is considered partial redemption.
Common occurrences of this include when mortgages are paid in full after a house sale. The mortgage would have paid further interest over time, but the bank accepts payment of only the outstanding loan amount.
Partial redemption also occurs when a bond issuer—or borrower— wishes to pay off their debt when interest rates drop. Redeeming bonds and issuing new bonds at lower rates saves money on interest for corporate and municipal bond issuers.
You may wish to accept partial payments in your business. If you offer goods or services that are best paid for in installments—or if you need the security of an initial deposit—then partial pay can offer flexibility for you and your customers.
It’s important to include clear payment terms on all contracts and invoices so that you and your customer understand when full payment is due. In the event of late payment or non-payment, you may need to reach out to your customer or take further action to make sure your business gets paid.