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Do you offer payment plans or are considering offering buy now, pay later (BNPL) plans to your customers? Payment plans are becoming more and more popular for small business owners who sell courses/digital products and services.

Offering payment plans are a great way to boost sales and customer loyalty. Before you start offering those plans, it's important to understand that offering payment plans also comes with legal risks that businesses need to be aware of. In this article, we'll dive into ways you can offer payment plans to customers and the legal issues that come with them. By understanding what’s involved in offering installment plans and the legal obligations that come with it, you can protect your business and your customers while making the most of this popular payment option. Here's what to consider when offering payment plans in your online business.

Which provider you'll use when offering payment plans

When choosing a BNPL provider for your business, there are several factors to consider. One of the most important is compatibility with your e-commerce platform. You'll want to choose a BNPL provider that integrates seamlessly with your platform, making it easy to offer the BNPL option to your customers. In addition to compatibility, it's important to consider the fees and costs associated with the BNPL provider. BNPL providers typically charge fees for their services, such as transaction fees and interest rates. Some providers, like Sezzle, offer a zero-interest payment plan, which can be an attractive option for customers. If you have Paypal as a payment option, they have their own installment plan called “Pay in 4” that will be offered if your client qualifies. 

Some other popular BNPL providers you may want to consider include Afterpay, Klarna, and Affirm. Make sure to do your research and compare different providers to find the one that best fits your business needs and offers the most value to your customers. By choosing the right BNPL provider, you can offer a convenient and attractive payment plan option to your customers while increasing sales and customer loyalty.


If you have enabled Paypal as a payment processor for your product in Thrivecart, your customers will have the option to do “Pay in 4” in most instances. If you are using the Stripe Enhanced payment processor for your product in Thrivecart, they will see the best BNPL provider based on their location; for USA it could include Afterpay, Klarna or Affirm; for other countries, you may see less options or country-specific options. Contact Thrivecart support here with country-specific questions for BNPL for Stripe Enhanced.

How to Set Up Payment Plans for Customers

You may also benefit from a checkout system like Thrivecart or Samcart. These checkout systems offer a range of features such as one-click upsells, order bumps, and customizable checkout pages, which can help you increase your average order value and improve the overall customer experience. Additionally, they offer various payment integrations, including PayPal and Stripe. Thrivecart and Samcart both have user-friendly interfaces that make it easy for you to set up and customize your checkout process, even if you don't have any technical knowledge. They also offer various analytics and reporting tools, allowing you to track your sales data and optimize your checkout process over time. 

You can also create your own payment plans with these systems to accommodate different payment preferences and enhance the customer experience. Unlike the ones above, if a payment fails in Thrivecart or Samcart, you won't collect all of your funds up front and you'll need to follow up with customers on your own to get paid. 

Consumer protection laws when offering payment plans to customers

If you're considering using payment plans for your business, it's important to understand that these services are considered a type of credit and are subject to various consumer protection laws. 

Here are some of the laws you'll need to comply with when you're offering a payment plan option.

Truth in Lending Act (TILA)

TILA requires lenders to disclose certain information about credit terms and costs to consumers. This includes the total amount financed, the annual percentage rate (APR), the finance charge, and the total payments required. BNPL services must comply with TILA disclosure requirements and provide consumers with a clear and accurate understanding of the terms and conditions of their credit.

Say you're selling an online course for $1,000. You offer two payment options to your customers: they can either pay in full at the time of purchase or they can pay in four monthly installments of $300 each.

If a customer chooses the installment plan, they will pay a total of $1,200 ($300 x 4) over the four-month period, which includes an additional charge of $200 on top of the original $1,000 price.

In this scenario, TILA would apply to the installment payment plan, but NOT to the payment in full option. This is because the installment plan involves extending credit to the customer and charging an additional fee, which is considered a finance charge under TILA.

As the seller, you would need to comply with TILA's disclosure requirements for the installment payment plan. This would include providing customers with a written disclosure statement that outlines the finance charge, APR, payment schedule, and any other fees or charges associated with the credit.

Payment Plan Disclosure Requirements

When you offer payment plans to your customers, you want to make sure they have all the information they need to make the right decision for their finances. That's why disclosure requirements are in place to protect consumers and help them understand the fees, interest rates, and repayment terms associated with payment plans.

One of the most important disclosure requirements for payment plans is providing clear and easy-to-understand information on fees. That means making it crystal clear to your customers what fees they'll be charged, like transaction fees or late fees. By being upfront about fees, customers can make informed choices about whether a payment plan is the right option for them.

Another critical disclosure requirement for payment plans is providing clear information on interest rates. This includes letting customers know the annual percentage rate (APR) and any other interest charges that may apply. By giving customers a clear picture of the interest rates, they can make informed decisions about the cost of using payment plans and whether they can afford it.

Lastly, payment plans must provide clear information on repayment terms. This includes information on the total amount due, the due date, and any penalties that may apply if payments are missed. By providing clear repayment terms, customers can understand exactly what they're getting into when they use payment plans and can make informed decisions about whether they can manage to pay back what they owe. If you're using a provider like Klarna, Paypal, or Sezzle, they've handled this on the backend. However, if you're providing your own payment plans that cost more than paying in full, you'll have to create the disclosure yourself.  

Wondering what this looks like, here's an example:

“By selecting this payment plan option, you agree to pay a one-time transaction fee of $5.00, plus a late fee of $10.00 if your payment is more than 10 days late. The annual percentage rate (APR) for this payment plan is 15%. If you make all payments on time, you will make a total of 4 payments of $50.00 each, for a total amount of $200.00. If you miss a payment, the total amount due will be adjusted accordingly. Payments will be due on the 1st of each month, and penalties for missed payments will apply. By using this payment plan, you agree to the terms and conditions outlined in the agreement.”

By providing clear and transparent information about fees, interest rates, and repayment terms, you're giving your customers the power to make smart financial decisions. It's not just a legal requirement – it's also a way to build trust with your customers and help them feel confident about using payment plans.

Data Privacy and Payment Plans

If you're offering payment plans to your customers, you want to make sure their personal and financial information is safe and sound. One way to do that is by having a privacy policy in place that tells them how you collect, use, and protect their data.

Think of a privacy policy like a guidebook on data collection for your customers. It explains what information you need to collect (like their name, address, and credit card number), how you collect it (maybe through an online form or over the phone), and what you do with it (like processing their payments and keeping track of their order).

Having a privacy policy shows your customers that you take their privacy seriously. It helps them feel more comfortable sharing their information with you because they know you're doing everything you can to protect it. Plus, it's required by law in many places, so it's important to have one.

Your privacy policy should also give customers some control over their information. For example, you might offer an option to opt-out of marketing emails, or let them know how to update their personal details or delete their information altogether.

Overall, having a clear and transparent privacy policy can help you build trust with your customers and protect their personal and financial information. It also shows that you're committed to data privacy and security. So take the time to create a privacy policy that's easy to understand and covers all the important details.

Debt Collection and Default

When offering payment plans to customers, it's important to understand the debt collection and default issues that can arise. If payments are not made on time or in full, debt collection efforts may become necessary.

In the event of a default, customers may be subject to collection efforts, such as phone calls, emails, or letters demanding payment. It's important to note that providers of payment plans are legally required to comply with fair debt collection practices, such as those set forth in the Fair Debt Collection Practices Act (FDCPA) in the United States.

The FDCPA provides guidelines for debt collection practices, including restrictions on when and how debt collectors can contact customers, as well as prohibitions against harassment, false statements, and other unfair practices. Providers of payment plans must comply with these guidelines when attempting to collect on delinquent accounts.

In addition to legal requirements, customers can take steps to protect themselves from debt-related problems when using payment plans. This includes having terms and conditions of the payment plan before your customer agrees to it. 

Your terms and conditions should include:

  1. Payment Schedule: Provide a clear schedule of payments that customers will be required to make under the payment plan. This should include the total amount due, the number of payments required, and the due dates for each payment.
  2. Interest and Fees: Clearly outline any interest rates, fees, or penalties that may be charged under the payment plan. This can include late fees, transaction fees, or other charges that may apply.
  3. Default and Collection: Explain what will happen if a customer defaults on a payment or fails to meet the terms of the payment plan. This can include information on late fees, penalties, and the potential for debt collection efforts if the account becomes delinquent.
  4. Modifications and Cancellation: Specify whether customers can modify or cancel the payment plan, and under what conditions. This can include information on any fees or penalties that may apply if the payment plan is canceled.

It's also important to understand the consequences of defaulting on payments. These consequences can include late fees, penalties, and damage to credit scores. In some cases, debt collection efforts may escalate to legal action, such as a lawsuit to recover the amount owed.

Again, if you're using a service like Afterpay or Klarna, they'll handle debt collection issues, while you get paid upfront. But if you're using a checkout system like Thrivecart and offering payment plans for purchases on your own accord, you'll have to handle debt collection.

For providers offering payment plans, complying with legal requirements and providing clear and transparent information about debt collection practices can help build trust with customers and protect against potential legal issues.

Conclusion: What to consider when you offer a payment plan to customers

Offering payment plans to customers can be a great way to increase sales and improve customer satisfaction. However, it's important to understand the legal considerations associated with payment plans and to comply with all applicable laws and regulations. This includes providing clear and transparent information on fees, interest rates, and repayment terms, protecting customer data privacy and security, complying with fair debt collection practices, and having clear and concise terms and conditions for the payment plan. 

By taking these steps, businesses can protect themselves from legal liability and build trust with their customers.

Michelle Wilson Murphy is a small business attorney who works with online business owners to legally protect their content and business using simplistic and effortless methods to achieve compliance.

She is the owner of The CEO Legal Loft where she offers contract templates and other legal resources designed to help online businesses protect themselves and comply with legal requirements. Whether you're just starting out or looking to expand your business, she's a great resource to help you achieve your goals while minimizing legal risk.

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