What is Partial Pay?
Partial pay is a payment that is less than the full amount due. Other terms to describe partial payment include part payment, down payment, installment payment, or upfront payment.
Partial pay may arise in multiple scenarios, such as:
Service Orders: When a service order is placed, the customer makes a partial payment upfront, and the rest of the payment is made after the service is completed. This is commonly used for contractors to ensure that they complete the work on time and to the customer’s satisfaction, and also guarantees payment for the service provider.
Installment Accounts: This is where a specific amount of money is borrowed, and the borrower makes set payments at regular intervals. Examples include car loans and large appliance purchases.
Revolving Accounts: These are accounts where the borrower can borrow up to a specific limit, and payments vary based on how much is borrowed. Credit cards and home equity lines of credit are examples of revolving accounts.
Real Estate Deals: When buying a property, the buyer usually makes an upfront payment that goes towards the total property value, and the remaining balance is paid off through a mortgage loan.
Business Takeovers and Mergers: In these cases, the buyer agrees to make a partial payment upfront as a security measure. This allows the buyer to withhold the remaining amount of money in case of negative circumstances affecting the company being purchased.
What are the Benefits of Partial Payments?
Partial payments benefit customers by enabling them to keep hold of some of their money to motivate a service provider to complete work as expected. Additionally, businesses may choose to use partial pay to secure themselves against unforeseen circumstances that may impact the customer’s end of the transaction..
How is a Partial Payment Invoiced?
There are two primary methods to invoice a partial payment against an invoice:
- If you record invoice payments manually using software, you can typically indicate if an invoice has been partially paid. Some software may even automatically detect this based on the difference between the full amount and the amount paid.
- When a customer makes an online payment, your ecommerce system should show that there is still an outstanding balance. Whether or not you allow customers to make partial payments is at your discretion as the creditor.
Examples of Invoice Terms for Partial Payments
Here are a few examples of how to word partial payments on an invoice:
- “50% deposit required, remaining balance due upon delivery”
- “50% of payment due upon receiving the invoice”
- “Payment split equally, with 50% due upfront and 50% due upon completion/delivery”
- “Full payment due within 50 days of the invoice date”
- “Minimum amount that needs to be paid by the due date”
- “Remaining balance due within 60 days of the initial payment”
- “Payment due on the 1st of each month, starting from July 1, 2023”
- “Discount of 1% if payment is made within 10 days, otherwise full payment is due within 30 days”
- “Payment made by offsetting a debt owed by the creditor to the debtor”
Note that it is crucial to list all payment terms clearly and explain them fully on every invoice to prevent customer confusion and assign payment liability to the customer.
Is a Partial Payment Considered Late?
A partial payment is not considered late if both the creditor and the payee agreed to it in a signed contract. This can be the case with installment plans, grace periods, and other arrangements. The key to avoiding misunderstandings is communication and understanding conditions. Businesses often find ways to collaborate with late-paying clients who request a solution and may not consider some partial payments late.
A partial payment is considered late if it is made after the due date or grace period and it is not specified in the contract. This is especially relevant when there is no discussion of any exceptions between the creditor and the payee.
Making a partial payment that is considered late may incur:
- Fees charged for late payment
- Interest rates that are higher than normal
- Negative information recorded on the customer’s credit report
- Interruption or suspension of service
- Taking back the purchased item due to non-payment
- Other potential consequences or penalties
What is Partial Redemption?
Redeemable or callable bonds (bonds that may be redeemed by the issuer before their maturity date) that are paid partially are called partial redemptions. Corporate or municipal issuers may perform a partial redemption to replace high-interest bonds with new bonds at lower rates and save money.