Partial payment refers to the payment of an invoice for less than the total amount due to the billing party. It’s a disbursement of a small portion of the agreed payment commitment.
Other terms used for partial payment are upfront payment, down payment, installment payment, or part payment.
This type of payment mainly occurs in different scenarios like:
Real estate deals often result in part payment at the beginning, where the buyer issues an amount of a fraction of the total value of the property. The remaining payment is done through installments overtime or paid through mortgage debt.
Service orders are where the payment is paid in installments allowing the buyer to have partial control over the job. In some cases, half the amount is payable on receipt and the other half on completing the job. For more comprehensive services, the buyer may invoice as the job proceeds.
Car loans or large appliance purchases often require installment payments. A loan corresponds to the purchase amount, and the buyer gets a payment method issued to their account.
Business mergers or takeovers require the issuance of partial payment according to a previously settled schedule. In this case, both the buying and selling parties benefit from the partial transactions. The buyer uses this payment as a security deposit if anything happens that’s not aforementioned in the agreement. On the other hand, the seller withholding the remaining sum of money has a compensation method if the settlement negatively affects the company.
Credit or revolving accounts allow borrowers to loan money with a maximum limit set by a lender. Issuance of a credit card with a limit is given to the account holder enabling the customer to pay up the loan in installments.
Why Do Customers Choose Partial Payment?
Partial payment is a convenient way for customers to control a portion of the compensation to motivate a service provider to complete their work efficiently and on time. It also works as a guarantee for the completion of the work.
And for businesses, it works as a down payment or security money against unexpected circumstances from the customer’s end.
How Do I Record an Invoice for Partial Payment?
Whenever partial payments occur, invoicing becomes mandatory to keep track of all the payment transactions of the customer over time. You can keep records of invoices for partial payments in two ways: Manually & Online Payment Gateway.
When recording invoices manually, invoicing software can be handy in recording the payment status to partially paid. Later on, when you re-enter the payment in the software, it will automatically change the status to paid.
You can permit your e-commerce system to allow customers to make partial payments when checking out. This will record the fee as partially paid, indicating a balance due. Later the customer will be able to see their due and pay the balance amount changing the status to paid in full.
What Invoice Terms to Use for Partial Payments?
An invoice for partial payments should be clear and written on point. These terms indicate how a business owner accepts payment for their provided service.
Here are a few examples. Businesses can use terms in their invoice when indicating partial payments and change them according to the agreement.
“50% payment on receipt of the customer order”
“50% payment on completion of work”
“3/10, net 30”
“50% deposit, payment due on delivery”
“50% due upon receipt of invoice”
“Remaining payment due in 30 days”
“Monthly payment of the balance due on 10 September 2022”
“Minimum payment owing”
“Monthly installment payable by 21 August 2022”
Are Partial Payment and Late Payment the Same?
A partial payment is when you pay a portion of the bill and proceed to pay it over time. On the other hand, a late payment is when you fail to pay the minimum or the agreed-upon money in due time.
A partial payment can become late if the payee cannot fulfill the payable amount in due time. This situation occurs when the creditor and the payee haven’t made any communication, or the grace period was not flexible in the written contract.
The key takeaway is that businesses and customers must communicate and understand the situation and find a solution.
Partial payments considered late may add some additional fees, such as:
Higher interest rates
Decrease in credit score
Delay and disturbance of service
Retrieval of the purchased item or good
A penalty of paying double the original
Other possible penalties
What Does Partial Redemption Mean?
Partial redemption means paying a share of a callable bond before its expiration date or maturity date. Partial redemption only issues a certain portion of payment at a time, unlike the whole redemption.