A Step-by-Step Guide to Offering Payment Plans in the UK

Navigating the New Payment Landscape

In an era where consumers expect greater flexibility, offering payment plans has become a strategic move for UK businesses. Whether you’re a retailer, service provider, or SME, enabling your customers to spread the cost can boost sales and foster loyalty. This guide demystifies the process, highlights the risks, and helps you weigh the pros and cons.

Who Should Consider Offering Payment Plans?

This guide is ideal for UK-based business owners or managers considering ways to make their products or services more accessible. If you’re looking to attract new customers, increase average order values, or respond to consumer demand for flexible finance, implementing payment plans could be a game-changer.

Key Terms: Understanding Payment Plans

Payment Plan: An agreement allowing customers to pay for goods or services in instalments over a specified period rather than one lump sum. These can be interest-free or include interest, depending on the structure and provider.

Retail Finance Broker: A regulated intermediary (such as Kandoo) that connects businesses with lenders, facilitating payment plan solutions.

APR (Annual Percentage Rate): The total cost of borrowing, including interest and fees, expressed as a yearly rate. Understanding APR is crucial for transparency with your customers.

Buy Now, Pay Later (BNPL): A popular form of payment plan enabling customers to defer payment or pay in instalments, often interest-free for a set period.

Credit Risk: The possibility that a customer may default on payments. Businesses must assess and manage this risk, typically with the help of a finance provider.

Options for Offering Payment Plans

UK businesses have several routes to offer payment plans:

• Partnering with a Retail Finance Provider: Work with a broker like Kandoo to access a panel of lenders and flexible finance products tailored to your sector and customer base.

• In-house Financing: Larger businesses may develop their own instalment schemes, though this requires robust credit assessment and collections processes.

• Third-party Platforms: Platforms such as Klarna, Clearpay, or PayPal Credit offer quick integration and familiar options for consumers.

Each option varies in terms of set-up complexity, control, customer experience, and cost. Most SMEs opt for a broker or third-party platform due to ease and regulatory support. Larger businesses with the infrastructure may choose in-house solutions for greater flexibility and branding.

Costs, Impacts, and Risks

While payment plans can drive growth, they come with financial implications:

Interest-free plans may attract more customers, while interest-bearing options can generate additional revenue but carry greater regulatory scrutiny. Always assess whether the uplift in sales will offset costs and risks.

Eligibility, Requirements, and Conditions

To offer payment plans, UK businesses typically need:

• A minimum trading history (often 6–12 months)

• Proof of steady turnover

• FCA authorisation, or a partnership with an authorised broker

• Compliance with data protection and consumer credit regulations

• Integration with e-commerce or POS systems for seamless customer journeys

Requirements can vary depending on your provider and the finance products selected. Due diligence is essential before signing any agreements.

How to Offer Payment Plans: Step-by-Step

1. Assess your business needs and customer demand

2. Research finance providers and select a partner

3. Complete due diligence and compliance checks

4. Integrate payment plan options with your POS or website

5. Train staff on new processes and compliance

6. Promote payment plans to customers

7. Monitor uptake and customer feedback

8. Review performance and make adjustments as needed

Pros & Cons: Key Considerations

Pros:

• Attract a broader customer base

• Increase average transaction values

• Improve customer satisfaction and loyalty

Cons:

• Additional merchant fees and administrative workload

• Possible impact on cash flow

• Compliance and regulatory requirements

Careful planning and partnership with reputable providers can help maximise the benefits while mitigating potential downsides.

Before You Decide: What to Watch For

Before implementing payment plans, consider:

• How fees and charges will impact your margins

• The reputational risk if customers have negative experiences

• Your obligations under UK consumer credit law

• The support and reporting offered by your chosen provider

Ask about integration support, customer service, and how defaults or disputes are handled. Transparency is key for both you and your customers.

Alternatives to Traditional Payment Plans

If direct payment plans aren’t right for your business, consider:

• Layaway Schemes: Customers reserve products and pay over time before taking them home.

• Invoice Financing: Useful for B2B, allowing you to receive early payment on invoices.

• Credit Card Partnerships: Collaborate with card issuers for promotional finance offers.

Each alternative carries its own operational and risk considerations, so weigh these options carefully.

Frequently Asked Questions

1. Do I need FCA authorisation to offer payment plans? If you provide credit directly, authorisation is required. Partnering with a broker like Kandoo allows you to offer plans without direct authorisation, as the broker handles regulatory compliance.

2. Are payment plans suitable for all businesses? Most sectors can benefit, but high-risk industries may face stricter eligibility checks or higher fees.

3. How are customer defaults managed? If using a third-party provider, they typically handle collections and assume the credit risk. In-house solutions require your own collections process.

4. What does it cost to set up payment plans? Costs vary by provider but generally include set-up and ongoing transaction fees. Compare providers for transparent pricing.

5. Will offering payment plans affect my business credit score? Not directly. However, responsible management and prompt settlements can be positive indicators.

6. How do I integrate payment plans into my website? Most providers offer plug-ins or APIs for popular e-commerce platforms, supported by onboarding teams.

Taking the Next Step

Introducing payment plans can be a powerful way to unlock new growth and meet evolving customer expectations. Take time to research trusted partners, review your compliance obligations, and involve your team in the rollout. With careful planning, you can provide genuine value to your customers and your business.

Disclaimer

This article is intended for informational purposes only and does not constitute financial advice. Businesses should seek independent professional advice and ensure compliance with all relevant UK regulations before implementing payment plans.