The installment or installment method is often used for revenue recognition approaches in which the business owner defers gross profit on sales until receiving cash for the sale from the buyer. The installment income recognition method records a proportional profit when the installments are received. The installment method is typically used in situations where the customer has permission to pay off the invoice in periodic installments over several years.
Based on this, currently customers in the modern era must have used installment payments as a purchase option to get the goods they want. Therefore, it is estimated that the trend of installment payments will continue to grow and will continue to increase.
As a business owner, you should start thinking about offering installment payment options to meet your buyer’s transaction needs and strategies to maintain customer satisfaction. Offering customers to pay for their purchases in installments can benefit you and your business.
The advantages of the installment payment method for merchants and customers are:
Benefits for your customers
Financially conscious customers can treat themselves to something that might not be affordable with a carefully calculated household budget. When you offer an installment payment method, your customers benefit from low monthly payments. A potentially more advantageous requirement than a loan or credit card is the ability to make the desired purchases without compromising their monthly budget
Expanding marketing strategy
When buyers use paylater or installment payments more often, they will immediately open the website of the installment payment provider and find out what retail merchants are collaborating. Surely this kind of exposure has been shown to significantly increase sales to the retailer’s platform every month. Buyers can easily find out which merchants offer installment packages and which don’t
Profit for your business
Of course, when your customers benefit, your business benefits too. While installment payments can complicate your bookkeeping a bit, they can also be very beneficial for SMEs in particular such as:
- Regular payments allow you to manage cash flow
- Offering flexibility and convenience to your customers can strengthen your brand’s appeal
Accounting for installment payments.
- Most merchants that offer installment payments use automated invoicing software to ensure that payments are made on time. Because the revenue for this sale is deferred, you must be extra careful in recording the revenue from this sale.
- Your gross margin for these sales is calculated as net sales value less cost of goods sold. You can choose to set up partial payments on a single invoice or set up recurring invoices for each payment until the balance is settled.
Payment of installments or installments not only benefits the business actor but also the buyer. This is because the payment of goods in installments is easier for customers to manage. They may also find it easier to manage monthly spending when they want to shop.