Although it may make sense to get paid a lump sum up front, sometimes business contract payment options should include multi-payments. But you’ll want to set it up right so that the agreement doesn’t come back to haunt you with a loss, FTC government investigation, or even a lawsuit.
Consumer Cooling-Off Period
If you’re selling to a consumer (a B2C transaction), you may be required by law to offer a “cooling off” period (e.g. 3 days) for the customer to change their mind and rescind the deal, particularly if the dollar amount of the purchase is relatively large. And a multi-pay option isn’t a way to circumvent that requirement. Don’t engage in predatory payment practices, especially when the customer is a consumer.
Regardless, you’ll still want to consider if a 2-pay, 3-pay, or even recurring monthly charges makes more sense than getting paid up front the entire purchase price. You’ll want to test to see what converts best and take into account as well those who stop paying before payment in full occurs.
Beware Of Usury In Your Business Contract Payment Terms
Some try to cover this risk by adding a multi-pay convenience fee to the purchase price. This can be effective. However, if the fee is too high, you may run afoul of usury laws because the fee is interpreted as excessive interest. It really depends upon the deal itself, how much you charge, and which laws apply.
Cover Costs Up Front
One of the easiest ways to prevent loss when your business contract payment options permit multi-pay is to have the first payment cover the cost of the goods or services being sold…with each additional payment thereafter being profit.
This is easy to do when you’re selling info products that cost little to produce and have a high markup. However, it’s also common in other industries. For example, rent-to-own furniture stores frequently charge enough on the front end to at least break even if the customer doesn’t make another payment. Jewelry stores do it too.
Method of payment is also important. For instance, PayPal often charges more in fees than a merchant account for a credit card sale whether it’s a single or multi-payment purchase. And if you run an ACH payment through your merchant account processor, that’s likely to cost you a few percent that you wouldn’t pay if the customer did ACH payments directly to your business bank account.
Help With Business Contract Payment Options
An experienced business lawyer can draft an agreement that’s right for you, including one that lets you offer prospective customers various options to pay you, each of which is profitable from your perspective. And you’ll want the attorney to create a refund policy that’s consistent with the payment terms you provide.