However, one possible solution for tradespeople is to offer customers the opportunity to pay in instalments instead of one initial lump sum.
Our recent research found that a quarter (25%) of UK tradespeople already offer such schemes, and one in five (20%) think that they help secure more business.
But what should tradespeople think about before committing to offering payment plans?
We spoke to Rick Smith, managing director at insolvency and business rescue specialists Forbes Burton, to share advice for tradespeople who are considering allowing customers to pay on finance.
What are the advantages of payment plans?
Rick says: “It is definitely a good idea for businesses to allow more flexible payment terms as we should all look to work together to ease the current economic strains.”
“If companies allow more customers to have payment plans, it should encourage those who might have been previously hesitant to spend money.
“The 'buy now pay later' model is what most opt for. Payment flexibility has been implemented into some of the world's largest brands and payment platforms, such as PayPal and Amazon, as well as apps like Klarna. This can be easily translated into the trades if businesses can work out the complexities.”
What are the risks involved in offering payment plans?
Rick advises: “The biggest risk here is impact to cash flow, which then leads to cost of recovery or debt write off. There is also the commercial viability of recovery to be considered – the cost to pursue the debt to then get no return. Businesses should enter into such terms with care and should also seek to protect themselves either with contract agreements or by using protected credit programs.”
What can tradespeople do to protect themselves against these risks?
Rick says: “To protect against risks, businesses can get insurance as a means of protecting this exposure, but tradespeople are better off sticking to what they do best and outsource the funding line in a similar way that car dealerships do.”
How can I begin to offer payment plans?
1) Financial feasibility: “The business owner should assess the financial viability of offering payment plans. You should ensure that you have the resources to provide the financing for the payment plan and that it won't negatively impact the business' cash flow.”
2) Legal compliance: “The payment plan needs to be compliant with all applicable laws and regulations, including consumer protection laws, truth-in-lending laws, and debt collection laws. You’ll need to look at whether their proposed offering falls under the remit of the Financial Conduct Authority, and if it does, you’ll need to apply for authorisation.”
3) Terms and conditions: “You’ll need to make sure that you define the terms and conditions of the payment plan, including the amount to be paid, the payment schedule, the interest rate (if any), and any late payment fees.”
4) Processing and tracking: “The business owner should have a system in place for processing and tracking payments, including a method for monitoring payments, handling delinquent accounts, and reporting to credit bureaus.”
5) Collection plans: “Put in place a good debt collection system. Make sure you can collect in what you are owed and understand how to take it to court if necessary. Look into using debt collection companies.”
6) Communication plan: “There needs to be a communication plan in place to inform customers of the payment plan options available to them. This includes the terms and conditions of the plan, how to enrol, and how to make payments.”
Check out our blog if you’re a tradesperson looking for more advice on how to start a business. For your on the job needs and supplies, whether you’re just starting out or already an established business, you can view our ranges online, from screws, fixings and adhesives, to door hardware and closers.
