Understanding partial payments
Partial payments give customers some reassurance that they have control over a project. The customer doesn’t have to pay for the product or service until the work is completed. From the customer’s point of view, this helps them feel as though the business has an incentive to complete the work as expected. The business, on the other hand, has received some funds up-front, so even if the customer defaults, they haven’t lost all of their money.
Partial payments can help customers manage their budgets. Some businesses also find they’re helpful from a cash flow point of view because this way of invoicing brings in some money at the start of a project, with additional income later. You may find it beneficial to seek advice about accounting practices for your small business to ensure those outstanding payments are properly recorded.
Examples of partial payments
Part payment is common in some industries, including:
- Real estate: Buyers make an up-front deposit on the property and then use a mortgage loan to fulfill the remaining balance.
- Installment accounts: Many large consumer goods are purchased on installment accounts. Car loans are another example of this.
- Revolving accounts: In the B2B world, revolving accounts with a specific credit limit are often used, with businesses spending on the account and settling when invoiced.
- Service orders: Contractors often use service orders, with an up-front payment before work is started and installments paid monthly and/or when certain milestones are reached.
How to invoice a partial payment
If you decide to accept part payment for certain services, you will need to highlight the terms of payment on the invoice. Exactly how you do this will depend on whether you’re taking payments online or processing payments manually.
When accepting partial payments, you should highlight to the customer that there is still a balance due and when that balance should be paid by. Your ecommerce system or accounting software should offer options for recording partial payments and managing due dates.
Common partial payment invoice terms
If you have agreed to allow a customer to partially pay an invoice, this can be flagged on the invoice with terms such as:
- 50% deposit, balance due on delivery
- 50% due upon receipt of invoice
- Net 90
- Remaining balance due in 30 days
- Contra payment
- Monthly payment due on [date]
If you charge interest on outstanding balances, this should be highlighted on the invoice too.
