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.
Partial payment FAQs
What is a partial payment?
Partial payments are when a customer pays a portion of the amount they owe in one installment and then settles the remaining balance at a later date. This could be as simple as paying 50% of the balance up front and the rest on delivery or a longer-term installment plan.
Are part payments considered late payments?
A partial payment would not be considered a late payment as long as the business has agreed with the customer in advance that it’s acceptable for them to partially pay an invoice. However, if the business expects payment in full and the customer chooses to make a part payment, the business could pursue the customer for the remaining balance in accordance with any payment terms they have.
Does partial payment mean paying half?
Partial payment can mean paying half up-front and half later, but that is not always the case. Other payment terms, including monthly installment plans, revolving lines of credit or payments made at specific project milestones would also be classed as partial payments.
How are partial payments calculated?
The way a partial payment is calculated depends on the terms agreed upon between the business and the customer. This could be as simple as the customer paying 50% now and then 50% a certain number of days after the invoice is sent. Alternatively, a payment plan could include multiple installments, with interest added to the outstanding balance.
