A complete guide to payment plans for overdue customers

Summary

• A payment plan splits one fixed invoice amount across several agreed instalment dates. It’s how you recover a large invoice from a customer who wants to pay but can’t do it in one go.
• Offer one when the customer communicates well and cash flow is a temporary blocker. Don’t offer one to a customer ignoring your emails.
• Xero has no native payment plan feature. You can’t set up three instalments and have Xero track, remind and chase them.
• What Xero does support: part-payments against a single invoice, recording the schedule manually in a note field and reconciling each instalment as it lands.
• Don’t split the invoice into several separate invoices as a workaround. It creates reconciliation problems later.

What is a payment plan

Here’s a scenario: a good customer owes you a large invoice and can’t pay it in full right now. You’ve got two bad options: chase hard and risk the relationship or let it drift and carry the cash flow hit yourself. There is a third option: a payment plan.

A payment plan is a formal agreement to pay a fixed invoice amount across several scheduled instalments, on agreed dates, instead of in one lump sum. It’s easy to confuse with a few adjacent things, so it’s worth being precise:

• Not a repeating invoice. A repeating invoice generates multiple separate invoices for ongoing billing. A payment plan splits one fixed invoice into instalments paid across several dates.
• Not an ad-hoc part payment. With a part payment, the customer decides what to pay and when. A payment plan sets the instalment sizes and dates up front, with you in control.
• Not debt collection or invoice finance. The debt stays between you and the customer. You’re just changing the schedule, not passing it on or borrowing against it.

Done well, a payment plan turns a stuck invoice into a predictable, scheduled recovery, and it usually preserves the customer relationship while it does it.

When to offer a payment plan to an overdue customer

Offer a payment plan when all three of these conditions are met:

1. The customer is communicating well and engaging with your payment reminders.
2. They are communicating that cash flow (not willingness) is the blocker.
3. They are a customer worth keeping.

If they are not communicating well, they’ll soak up your time. If they are disputing the payment, it’s usually the wrong conditions for a payment plan. If they are a difficult customer in other regards, consider if they are worth keeping at all.

Workarounds for creating a payment plan in Xero

Xero doesn’t have a dedicated payment plan feature, but it does support some of the pieces, and with a bit of discipline you can run a plan manually. Here’s what some Xero users do today.

Record the agreed payment plan manually. You can note the agreed instalment dates and amounts in the invoice notes field in Xero to keep track of the arrangement.

Customer makes part-payments against a single invoice. A customer can make partial payments on the correct dates.

You reconcile each instalment as it lands. Xero will keep the invoice open until it’s fully paid so you don’t need to worry about the invoice disappearing.

With these three steps and some manual tracking, you can run a payment plan in Xero.

Xero’s limitations for creating a payment plan

What Xero doesn’t have is a native payment-plan feature. You can’t click “create payment plan”, set three instalments and have Xero track and chase them.

In practice, native Xero won’t:

• Schedule instalments as a structured plan on a single invoice. You’re recording it in a notes field, not building a tracked schedule.
• Remind the customer before each instalment automatically, from your own email.
• Chase only the missed instalment if one is late, while leaving the rest of the invoice alone.
• Keep the arrangement visible and consistent across your team without manual note-keeping.

This is the gap that Trove fills. Trove runs payment plans on top of your existing Xero invoice: scheduling the instalments, reminding before each one, and chasing only the instalment that’s late.

We walk through exactly how in how payment plans work in Trove.

Getting the schedule right

Payment plans aren’t only useful for a one-off cash flow crunch. Construction businesses use the same mechanism to carve retentions out of a contract and schedule them for release, rather than losing track of money that’s due months down the line.

If that’s your situation, see adding retentions to a payment plan: a guide for construction.