Credit-sales technique that divides the amount due into individual segments billed over time. It usually works best on purchases greater than $30. Installment billing is attractive to some buyers because it may solve a cash-flow problem and/or because the perceived price of the merchandise seems lower than if the price were charged all at once. The amount of each installment is usually highlighted on the promotion form, while the total cost is downplayed.
The amount of each billing segment is usually calculated by dividing the total selling price by the number of segments, resulting in equal payments. If there are unpaid prior segments, they will be added to current billing segments, or the current amount due will be recalculated based on the number of segments remaining.
Installment billing generally does not increase pay-up (the total percentage of credit buyers who pay) but does increase gross and net response. A disadvantage of installment billing is that it increases billing costs and slows the receipt of cash, although, in many cases, 50% of installment buyers will pay in full on the first bill. The disadvantages of installment billing must be weighed against the added response.
Installment billing is the primary billing technique of direct-mail agencies selling magazine subscriptions.
