What is a Partial Payment: Meaning, Types, and Examples

Studies show that nearly 60% of small businesses in the UK are waiting on unpaid money, which cannot be used because it is tied to unpaid invoices. 

People can find a reliable solution to this problem with partial payments. 

In the following sections, we explore partial payments, how they work, their benefits and drawbacks, and more.

What is a Partial Payment?

In essence, partial payments mean customers pay invoices in parts instead of covering the invoice total or the full amount upfront. In other words, partial payments are down payments towards an invoice representing a sum lower than the total amount.

Many businesses accept partial payments in certain circumstances, such as when they require a more stable cash flow or when a customer is currently unable to pay the full invoice amount at once.

With partial payments, customers can choose from multiple payment methods, depending on the payment provider that you partner with. Ensure your payment partners support different payment methods and allow you to collect deposits or upfront payments.

Types of Partial Payments

We’ve now covered the basic definition of parietal payments. However, it’s critical to note that there are different types of partial payments.

Below, we will review each one in detail:

• Scheduled partial payments: As the name indicates, this type of partial payment works with a predetermined payment plan and schedule. Scheduled partial payments are usually used for products or services that frequently require the accumulation of large total debt. One example is a student loan, where the service provider outlines how the total sum is partially paid based on the borrower’s income level. However, these payments can sometimes only cover part of the interest.

• Unscheduled partial payments: On the other hand, unscheduled partial payments happen when a customer pays an amount toward the invoice that is not part of the regular payment schedule. This usually happens when borrowers have more funds available than planned, allowing them to lower their outstanding balance. With unscheduled partial payments, the lender or creditor can collect more money but still not receive the full payment for the corresponding invoice.

• Partial payments in revolving credit: Another type of partial payment is revolving credit, where the payments are less than the full balance due. This can be seen on accounts like credit cards or lines of credit. Usually, partial payments in revolving credit represent the minimum payment the creditor needs but don’t cover the full balance.

• Fixed-amount partial payments: With fixed-amount partial payments, the borrower pays a predetermined amount toward a debt. The payment depends not on the entire amount due but on the agreed payment terms. 

Another type is the percentage-based partial payments, that are represented in percentage form, representing a portion of the total amount due. Rather than fixing a specific amount to be covered, the payment is flexible based on the current balance. 

In most cases, this type of partial payment is linked to occasions where the payments are connected to income or revenue.

Applications and Examples

So far, we’ve outlined the foundation of partial pay. However, to gain an even deeper understanding of this term, it is essential to examine real-life examples and their actual applications. Some of the most popular industries where partial payments are frequent include real estate, automobile, B2B, and contracting.

More on that below:

• Real estate: Property buyers often make a deposit on the real estate and then rely on mortgage loans to cover the remaining balance.

• Automobile: Car loans are also popular, representing the need for partial payments in the automobile industry and any large consumer goods market.

• B2B: In Business-to-business, companies often rely on revolving accounts with a certain credit limit. In this case, the business spends on the account and settles after invoicing.

• Contracting: In the world of contractors, service orders are a popular trend, meaning that up-front payments are made in advance, prior to the actual work, and instalments are paid monthly once specific milestones are reached.

These are just a few examples of partial payment applications. In the current dynamic business environment, partial payments are often used by businesses and consumers when using a payment tag for faster and smoother processing.

Benefits and Drawbacks

Like any other payment type, partial payments go hand in hand with benefits and drawbacks.

Let’s take a look at them in more detail.

Advantages of Making Partial Payments

From a consumer’s standpoint, partial payments are beneficial for several reasons.

First, it allows the client to maintain partial control over some of the money owed to incentivize a service provider to finish outstanding work quickly and with the agreed quality. 

Second, partial payments provide flexibility, enabling shoppers to cover invoices based on their financial situation. This ensures that even consumers who aren’t capable of purchasing goods or services from your company can become your clients, potentially paving the way for loyal customers in the future.

Third and most important, partial payments reduce financial stress by turning burdening payments into manageable chunks. 

Potential Drawbacks and Risks

At the same time, there are some challenges to address. For example, partial payments accumulate interest, especially on loans with high interest rates, like credit cards. In the end, the consumer pays a higher total amount.

In addition, partial payments create risks of longer repayment periods as shoppers often need more time to repay the remaining balance. Naturally, this means being in debt for longer than intended.

Moreover, failing to make payments on time or not meeting the required amount can lead to late or missed payments, negatively affecting the consumer’s credit score. In some cases, late fees and penalties may also be accumulated. 

Practical Considerations

When deciding between different partial payment strategies, it’s critical to understand your financial situation, the terms of your debt, and your goals over time.

Below, we share a few practical considerations worth making.

How to Choose a Partial Payment Strategy

Before deciding, review your income, monthly expenses, and any existing debt obligations. Ideally, ensure you have an emergency fund that you can rely on if the situation changes over time.

When choosing a partial payment strategy, review the loan agreement in detail and familiarise yourself with the terms and conditions. Check for any minimum payment requirements, interest rates, and penalties.

If you have several debts, it is recommended that you make full payments on high-interest debts to reduce the total costs. In most cases, partial payments are preferred for lower-interest debts. Always assess any possible risks and ensure that partial payments will not result in disruptions, repossession, or foreclosure. 

Tips for Managing Partial Payments Effectively

But what about the business perspective? How can companies ensure they manage partial payments effectively?

Let’s find out.

A common scenario is for businesses to lose track of payments. To avoid this, monitor received invoice payments and ensure they’re applied against the right ones. This will guarantee that your books are in outstanding condition and always up-to-date. 

In addition, remember to include the due date for the remaining balance in your contract or payment terms. Once you’ve received partial payment from a customer, you can send a reminder for the final invoice.

Always make sure that you outline the full invoice amount on the document, featuring any additional taxes and shipping fees. This will prevent future conflicts arising from a lack of information. 

A partial payment from a client can be incredibly useful for future protection. Once the partial payment has been coordinated, you’ll have the customer’s payment details on record, allowing you to contact the person to request a full payment. 

Tools For Managing Partial Payments by Businesses

Suppose you’re ready to unlock your business’s potential through partial payments. In that case, your tools will be important to your performance.

The essentials you’ll need include:

• Payment processing platforms: Payment processors like myPOS can help you set up partial payments and accept a wide range of payment methods from your customers.

• Accounting software: A range of advanced accounting software solutions enable companies to record partial payments, apply payments to outstanding invoices, and track remaining balances.

• Billing and invoicing software: Via billing and invoicing tools, you can simplify these processes and issue invoices for partial payments.

• Payment reminder tools: If your billing and invoicing software doesn’t offer reminder features, you can implement payment reminder tools to ensure you’re collecting payments on time.

The tools you need will ultimately depend on the type of business you’re running, your payment preferences, and your available budget. 

Conclusion

Partial payments are a top choice for businesses looking to stabilise their cash flow. Although setting up and requesting partial payments can take some time and effort, the advantages will outweigh any challenges you may face along the way.

This article will help you make all the right decisions regarding partial payments.

Frequently Asked Questions

How do I choose a niche for my travel agency?

Whether you choose adventure travel, cruises, luxury holidays or anything else, make sure to consider your interests in combination with your expertise and target market.

What technology and software do I need to run a travel agency?

Travel booking software is essential. Consider software that integrates with your customer relationship management (CRM) tools. Also, create a user-friendly website to handle reservations and inquiries.

What financial considerations should I keep in mind when starting a travel agency?

Be prepared with the initial startup costs and ongoing expenses, keeping in mind the potential market and seasonal fluctuations. Budget for marketing, staff and tools. Make sure to also choose a payment services provider that offers you safe acceptance of payments with instant settlement of funds.