Should You Offer Payment Plans to Customers? The Real Math
Win rate vs default rate analysis, contract templates, when to say yes, and the installment strategy that increases conversions without killing cash flow.
Customer asks: "Can I pay in installments? £4,800 upfront is tough right now."
Saying yes wins the job. But 22% of payment plans default. Here's the math on when payment plans increase revenue—and when they kill cash flow.
The Payment Plan Math: Win Rate vs Default Rate
Payment plans increase your win rate but also increase your default rate. The question is: does the math work?
Payment Plan Economics (Real UK Trade Data)
Average impact on win rates:
- Jobs under £2,000: Payment plans increase win rate by 8-12%
- Jobs £2,000-£5,000: Increase by 18-25%
- Jobs over £5,000: Increase by 30-40%
But default rates vary:
- No deposit, monthly installments: 22% default (never pay final installment)
- 50% deposit, 2-3 installments: 8% default
- Card-on-file autopay: 4% default (card declines, not deliberate non-payment)
The breakeven calculation:
Example: £4,000 job, 25% margin (£1,000 profit)
- Upfront payment only: Win 60% of quotes = £600 profit per quote
- Payment plan (50% deposit, 22% default): Win 80% of quotes × 78% paid = 62.4% realized = £624 profit per quote
- Payment plan (50% deposit, 8% default): Win 80% × 92% paid = 73.6% realized = £736 profit per quote
Conclusion: Payment plans increase profit only if you keep default rate under 10%. Above 10%, you're working for free to chase bad debt.
When to Offer Payment Plans (and When to Refuse)
Not every customer deserves a payment plan. Use these filters:
| Customer Type | Offer Payment Plan? | Why |
|---|---|---|
| Repeat customer (3+ jobs) | Yes | Track record of paying; low default risk |
| Homeowner (property verified) | Yes | Asset-backed; can pursue debt via property lien if needed |
| Business with registered address | Yes | Easy to pursue via small claims if default |
| Job over £3,000 | Yes (with deposit) | High-value jobs justify payment plans; deposit covers materials |
| First-time customer, no deposit offer | No | High default risk; no relationship, no skin in the game |
| Renter/tenant | Caution | Can move without forwarding address; harder to pursue debt |
| Customer haggles aggressively on price | No | Price shoppers = payment avoiders; correlation proven |
| Job under £1,500 | No | Admin overhead of payment plans not worth it for small jobs |
| Customer wants 6+ month plan | No | You're not a bank; long plans = high default rate |
The rule: Offer payment plans to customers with intent and ability to pay. Refuse customers who see payment plans as "maybe I'll pay later."
Safe Payment Plan Structure (That Actually Gets Paid)
If you offer a payment plan, structure it to minimize default risk:
Low-Risk Payment Plan Template
For £2,000-£5,000 jobs:
- Deposit: 50% upfront (covers materials + some labour)
- Progress payment: 30% when work is 75% complete
- Final payment: 20% on completion (small enough they won't skip, large enough to ensure quality)
- Timeline: All payments within 30 days of job start (no long-term financing)
For £5,000-£10,000 jobs:
- Deposit: 40% upfront
- 2 progress payments: 25% at 50% complete, 25% at 90% complete
- Final payment: 10% on completion + 7-day snag list period
- Timeline: Max 60 days from start to final payment
For jobs over £10,000:
- Deposit: 35% upfront
- 3-4 milestone payments: Tied to specific deliverables (not calendar dates)
- Retention: 5-10% held for 30 days post-completion
- Consider finance: Refer to consumer credit provider (Novuna, Hitachi) rather than self-financing
Critical rule: Card-on-file autopay
Don't rely on "customer will pay when invoiced." Use Stripe/GoCardless to store payment method and auto-charge on due dates. Default rate drops from 22% to 4% with autopay.
Contract Clauses That Protect You (Copy-Paste Ready)
Every payment plan needs these clauses in writing:
Get it signed before you start work. Chasing a payment plan agreement after the job is done = you've lost leverage.
What to Do When They Miss a Payment (The 14-Day Protocol)
Customer misses installment 2 of 3. Here's your escalation timeline:
Missed Payment Response Protocol
Day 0 (payment due date):
Automated reminder: "Payment of £X is due today. If already paid, please disregard. Otherwise, please settle by end of day."
Day 1 (payment overdue):
SMS + email: "Your payment of £X was due yesterday. Please pay by [date, 2 days away] to avoid late fees."
Day 3:
Phone call: "I notice payment 2 hasn't come through. Is everything okay? When can I expect payment?" (Listen for genuine hardship vs avoidance)
Day 7:
Formal notice: "Payment now 7 days overdue. Late fee of £50 applied. Payment required by [date] or we'll pause any remaining work and pursue recovery."
Day 14:
Final demand: "Payment now 14 days overdue. Total due: £X + £50 late fee + 8% interest. Pay within 7 days or we will: (1) stop work, (2) refer to debt collection, (3) pursue via small claims court."
Day 21:
Action: If no payment or credible payment plan offered, stop work (if ongoing) and refer to solicitor/debt collection agency. Don't wait 60 days—act fast.
Mistake to avoid: Don't complete the job hoping they'll "pay when it's done." If they've missed payment 2, they'll skip payment 3. Stop work immediately.
Alternatives to Payment Plans (That Protect Cash Flow Better)
Payment plans aren't the only option. Consider these alternatives:
| Alternative | How It Works | Best For |
|---|---|---|
| Consumer finance (Novuna, Hitachi, Chrysalis) | Customer applies, finance company pays you in full, customer repays finance company | Jobs £3K-£25K; you get paid upfront, customer gets 12-60 month terms |
| Deposit + completion only | 50% deposit, 50% on completion (no installments) | Jobs under £5K; simple, low admin, fast payment |
| Phased project scope | Customer pays for phase 1, you complete it, then quote phase 2 | Large projects; customer spreads cost by doing job in stages |
| Card payment (spread cost via customer's credit card) | You get paid in full via Stripe, customer uses credit card and pays interest to card issuer | Any job; zero risk to you, customer manages own financing |
| Price reduction for upfront payment | "£4,800 if paid in full upfront, or £5,200 if payment plan" | Incentivizes upfront payment without refusing installment option |
The best option: Partner with a consumer finance provider. They handle credit checks, they carry default risk, you get paid in full upfront. Win rate goes up, cash flow stays healthy.
The Verdict: Payment Plans Work—If Structured Right
Payment plans can increase win rates by 18-40% on jobs over £2,000.
But only if you:
- 1. Screen customers – Repeat customers and homeowners = low risk; first-timers and renters = high risk
- 2. Require 40-50% deposit – Covers materials, proves commitment, reduces default rate
- 3. Use card-on-file autopay – Cuts default rate from 22% to 4%
- 4. Keep timeline short – Max 30-60 days, not 6-12 months
- 5. Act fast on missed payments – Day 1 reminder, day 14 formal notice, day 21 debt collection
- 6. Consider finance alternatives – Consumer credit providers eliminate your risk entirely
The businesses that lose money on payment plans are the ones who say "pay whenever you can" with no structure. The ones who profit? They treat payment plans like contracts, not favours.
Offer payment plans strategically. Structure them protectively. Enforce them ruthlessly.