What is a ‘payment plan’ used in accounts receivable?

A payment plan in accounts receivable refers specifically to a structured arrangement that allows customers to settle their debts through a series of installment payments rather than a lump-sum payment. This method is particularly beneficial in helping customers manage their financial obligations over time, making it easier for them to pay off larger amounts without straining their budgets.

Payment plans can improve cash flow for businesses by ensuring that a portion of the debt is being paid regularly, which can help in managing outstanding accounts receivable. This approach not only assists customers who may be unable to pay the full amount upfront but also enhances customer loyalty as they feel supported in their purchasing process. By offering flexible payment options, businesses can also reduce the likelihood of defaults, making payment plans an effective tool in managing accounts receivable effectively.