An instalment plan splits one invoice into a schedule of smaller payments on agreed dates, usually collected automatically so your customer needn't act each time. The debt doesn't change: it's the same invoice with a timetable written over it. On Adfin, 3.8% of payment requests are on a schedule or instalment plan, and those invoices are smaller on average than one-off ones (Adfin platform data).
In this article
The short version
- One invoice, several agreed collection dates, with the debt and its VAT still attached to the original invoice.
- Direct debit is the usual mechanism: your customer does nothing for each collection, though every one of them needs advance notice of the amount and date.
- 3.8% of payment requests on Adfin are on a schedule or instalment plan, and the average invoice on one is roughly half the value of a one-off (Adfin platform data).
- Your admin cost is per collection, not per invoice, so a six-month plan carries six chances of a failed payment and six reconciliation events.
- Between two businesses, an instalment arrangement on a commercial invoice is outside the consumer credit regime. Where your customer is an individual, deferring payment can amount to credit, and whether a particular arrangement is caught depends on how it's built.
- This page describes the general position and doesn't tell you whether you need FCA authorisation, since that depends on facts a general article can't see.
What an instalment plan on an invoice is
A plan takes one receivable and gives it a timetable. You've invoiced £1,200, your customer agrees to pay across six monthly collections of £200, each taken on a date you both agreed.
Three things follow from the debt staying single. Your invoice number, your terms and your VAT position still relate to the original invoice, so nothing is re-issued. Your ledger shows part payments against it until the balance clears. And because a plan varies when payment falls due, the whole balance can become payable again if the plan breaks, provided you wrote that down at the start.
Plans get confused with two neighbours. A recurring invoice raises a new invoice each period for new work, with its own due date. Buy now, pay later has a third party lending your customer the money and paying you in full. An instalment plan keeps the credit risk with you.
Setting one up, step by step
The order matters, since a plan agreed by email and never built into the collection becomes a manual chase every month.
- Agree the total, the number of collections, the amount of each and the dates, in writing. Say what happens if a collection fails and whether the balance falls due.
- Decide whether you're charging for the delay. Between businesses you can agree interest or an administration charge, and where nothing is agreed, statutory interest on the balance is still capable of running from the day after the original due date.
- Put a collection mechanism behind it. A direct debit mandate is the usual answer, since it removes your customer's decision on each date, and direct debit mandates covers what makes one valid.
- Give advance notice of the amounts and dates. A direct debit authorises collection "as long as the customer has been given advance notice of the collection amounts and dates", and one accurate schedule sent at the start covers every collection on it.
- Set the plan up in the system that collects, not in a spreadsheet beside it. Reminders that don't know about the plan will chase an invoice being paid exactly as agreed.
- Flag the invoice in your ageing report, since one on a live plan reads very differently from one nobody has heard about. How to read an aged debtor report covers keeping those apart.
Who instalment plans suit
The plans that work tend to have one of three shapes.
An annual fee spread over the year. Practices do this constantly: a fixed fee agreed once and collected monthly, so your client's cash flow matches the work and you stop waiting for one big payment in January.
A large one-off bill for a client whose income is lumpy. Where your alternative is a 90 day wait and a series of phone calls, a plan turns an argument about timing into a schedule.
A client in temporary difficulty who told you before missing anything. A plan here gives you something measurable: either the collections arrive or they don't, and you know within a month.
Three situations where a plan tends not to help. A disputed invoice needs the dispute resolved first, since a schedule over a contested amount just spreads the argument. A first sale to a stranger puts your delivery ahead of their payment history. And a client who agrees plans and then breaks them is telling you something a third plan won't change.
What they cost you in admin
The commercial case for a plan holds only with the running cost in it, and that cost scales with your number of collections and not with the invoice.
| What changes | One-off invoice | Six-month plan |
|---|---|---|
| Payment events | 1 | 6 |
| Chances of a failed payment | 1 | 6 |
| Reconciliation entries | 1 | 6, all against one invoice |
| Per-transaction fees | 1 fee | 6 fees, each on a smaller amount |
| Notice obligations | None beyond your terms | Advance notice of the schedule |
Two rows there deserve attention before you offer plans widely. Pricing with a fixed pence element costs proportionally more on six £200 collections than on one £1,200 payment, so run the arithmetic in what it really costs to take payments at your own plan sizes. And part payments against one invoice are what most manual matching handles worst.
Plans on Adfin also run on smaller invoices than one-off requests do, averaging roughly half the value (Adfin platform data), so the admin only stays reasonable when your collections and your matching are automatic.
What happens when one instalment fails
A failed collection mid-plan turns a plan back into credit control, so design for it.
A failed direct debit comes back with a reason code from your customer's bank, telling you whether the account has closed, the mandate has been cancelled or the money wasn't there that day. Recovery is realistic: 60.1% of direct debit requests on Adfin that suffered a failed attempt were still collected (Adfin platform data, 269,518 collections first attempted between July 2024 and mid-July 2026), and failed payments and how to recover them covers the retry pattern.
Commercially, you have whatever choice you wrote down at the start: the missed collection is added to the next one, the plan extends by a period, or the whole balance becomes payable. All three are defensible. Having no stated answer is what causes trouble, since your customer's assumption and yours will differ.
A cancelled mandate is a different signal from a failed collection. The money not being there once is ordinary; your authority being withdrawn means the plan has ended unless your customer says otherwise, and that's a conversation to have, not a retry to schedule.
The regulatory question, and where it isn't settled
Two situations behave very differently, and the line between them is who your customer is.
Where both parties act in the course of a business, an instalment arrangement on a commercial invoice falls outside the consumer credit regime, and the Late Payment of Commercial Debts (Interest) Act 1998 governs the debt as before. Agreeing a schedule doesn't remove your rights to statutory interest and fixed compensation, covered in what you can charge on an overdue invoice.
Where your customer is an individual acting outside a business, letting them pay later than you otherwise would can amount to giving them credit, and consumer credit regulation could apply. Whether a particular plan is caught, and whether it needs FCA authorisation, depends on how it's built: the number of payments, the period, whether you charge for the delay, and the underlying agreement.
We haven't settled that boundary from a primary source, so this page doesn't state it. Both confident answers appear in general content online and neither is safe to apply blind. If any part of your book bills individuals, ask your professional adviser or the FCA before you offer plans as standard, and the answer may well be that a plan you already run is fine.
True either way: put the arrangement in writing, keep it consistent with the invoice, and don't call it a loan or finance in your terms unless you know it is one.
Common questions
Can I let a customer pay an invoice in instalments? Yes. A plan varies when payment falls due, and the invoice, its VAT treatment and your record of the debt stay as they were. Agree the amounts and dates in writing, say what happens if a collection fails, and put a collection mechanism behind it.
How are instalments usually collected? Direct debit, most often, because a mandate lets you collect each amount on the agreed date without your customer acting. Advance notice of the amounts and dates is a condition of collecting, so your schedule goes out at the start and has to be accurate.
Do I need FCA authorisation to offer an instalment plan? That depends on your customer and how the plan is built, and this article doesn't answer it for you. Between two businesses, an instalment arrangement on a commercial invoice falls outside the consumer credit regime. Where your customer is an individual, deferring payment can amount to credit, so take advice on your own arrangement.
Can I charge interest on an instalment plan? Between businesses you can agree interest or an administration charge, and where you agree nothing, statutory interest on the balance is capable of running from the day after the original due date. Charging a consumer for time to pay affects the regulatory question above.
What happens if one instalment fails? Your options are to add it to the next collection, extend the plan, or make the whole balance payable, and the one that causes trouble is not having decided. Recovery is common: 60.1% of direct debit requests on Adfin that suffered a failed attempt were still collected, on 269,518 collections first attempted between July 2024 and mid-July 2026.
Do instalment plans make my ageing report look worse? They can, if an invoice on a live plan reads the same as one nobody has heard about. Flag plans separately, and remember that direct debit collections settle a few days after the collection date through the Bacs cycle, so an instalment invoice can look late while being paid as agreed.
Sources
- GOV.UK — charging interest on a commercial debt (accurate as of August 2026)
- Bacs — Direct Debit (accurate as of August 2026)
This article is general information about instalment arrangements and is not legal, regulatory or financial advice. Whether a particular plan involves regulated consumer credit, and whether it requires FCA authorisation, depends on facts specific to your business and your customer, and this page does not answer that question. Last updated August 2026.
