Payment Plans vs Credit Cards: The Better Option for Business Services

When customers face a large invoice for professional services, their instinct is often to reach for a credit card. While that might seem convenient, it is rarely the best option for either the customer or the business. Here is why structured payment plans are a better alternative.

The Credit Card Trap for Customers

Credit cards can be a useful tool for small everyday purchases, but using them to pay for large business services creates problems:

• High interest rates: Most credit cards in New Zealand charge 20-25% per annum. A $6,000 service paid off over 12 months could cost the customer over $800 in interest alone
• Minimum payments: If the customer only makes minimum repayments, the debt can take years to clear and cost thousands in interest
• Credit limit constraints: Many customers simply do not have enough available credit for larger invoices
• Impact on credit utilisation: Maxing out a credit card negatively affects the customer's credit score

Why Credit Cards Are Risky for Businesses Too

Accepting credit card payments for large invoices might seem like a win for your business, but there are hidden costs:

• Merchant fees: You pay 1.5-3% on every transaction, cutting into your margin
• Chargebacks: Customers can dispute charges, and the process often favours the cardholder
• No guarantee of completion: A customer who puts services on a maxed-out card may have the transaction declined
• Delayed settlement: Credit card payments can take several days to reach your account

How Payment Plans Compare

Payment plans through a provider like Fee Funders offer significant advantages over credit cards for both parties:

For Your Customers

• Lower cost: Payment plan fees are typically much lower than credit card interest rates
• Fixed repayments: Customers know exactly what they will pay each month with no surprises
• No credit card required: Repayments come directly from their bank account
• Simple application: The process is straightforward and decisions are fast

For Your Business

• 100% upfront payment: Fee Funders pays you the full invoice amount immediately
• No merchant fees: You do not pay a percentage on each transaction
• No chargebacks: Once you are paid, the money is yours
• Zero risk: If the customer misses a repayment, it is not your concern
• Higher conversion: Customers are more likely to proceed when the payment feels affordable

A Real-World Comparison

Consider a $5,000 invoice for professional services:

Credit card (22% p.a.): If paid over 12 months, the customer pays approximately $5,600 in total. The business receives $4,850 after merchant fees.

Payment plan (Fee Funders): The customer pays structured monthly instalments with transparent fees. The business receives the full $5,000 upfront.

The customer pays less, and the business receives more. It is a straightforward improvement for everyone involved.

Making the Switch

If you currently rely on credit card payments for large invoices, consider offering payment plans as an alternative. You can present both options to customers and let them choose. Most will prefer the transparency and lower cost of a structured plan.

Fee Funders makes it easy to get started with no setup fees and no ongoing costs for your business. Visit our application page to learn more.