Missed Payments, Payment Plan Defaults and Cash Flow Crunches.. Let’s Talk About It.

May 23, 2023

Let’s talk about cash flow, because ultimately? CASH is the lifeblood of every business under the sun. 

Recently, I have had a number of conversations behind the scenes with clients that are feeling challenged managing payment plans, failed payments and the resulting cash flow challenges in their business.

In today’s podcast episode, we’re diving deep into payment plans, cash flow management and more. 

Listen On: Apple Podcasts | Spotify

Online course and coaching businesses USUALLY offer payment plans as an option for students and clients that are unable to pay “up front” for an investment. It’s a unique concept, in the sense that the course creator is ultimately shouldering the risk of defaults in the same way a bank would.

Here’s 10 things to think about when offering payment plans, and how to minimise your risk in offering them.

1️⃣ Expect Defaults

The truth is, there WILL be a small number of defaults when you offer payment plans, and this should be accounted for in your pricing with a mark up on payment plans.

Although controversial, we wholeheartedly stand by a mark up for shouldering both the risk of default and the administrative burden of following up on payment plans.

As a company, we spend multiple hours a week following up on missed payments, and this is multiple hours of team time which is an expense to our company.

2️⃣ Make Projections Based on Pay in Full Payments

For the above reason, we strongly recommend making cash flow projections based on your pay in full payment pricing for ALL sales, to give yourself a “worst case scenario” sales revenue forecast.

3️⃣ Make It Clear That Payment Plans Are NOT a Subscription You Can Cancel

If you want to decrease the number of payment plan issues you have, ensure that every touch point both PRE and POST purchase makes it clear that payment plans are offered in good faith to help make your course or program more accessible, but that they are not optional and cannot be cancelled.

This can be included as a tick box when purchased, in post purchase contracts/terms, on orientation calls and more.

4️⃣ Look for Options to Release Risk

There are more options becoming available for course creators to release the burden of shouldering the risk associated with taking on payment plans, especially if you are located in the US.

Although we haven’t used them, services like PayPal and Wisebank essentially allow customers to take a payment plan through their system, with the creator being paid up front. 

5️⃣ Keep on Top of Missed Payments

Ensure that you are completely across the volume of missed payments in your business. It can cause serious cash flow crunch issues if you are expecting a volume of payment plans for a particular month, and they are defaulting. A LOT of defaults are a sign that you might need to adjust your client base, add a quick financial win to your curriculum (if relevant), more clearly articulate that payment plans aren’t optional, shorten payment plan lengths or otherwise adjust your business operations to reduce them.

Your profit margins will increase again because don’t need front end leads.

You can have a VERY profitable business with 100 people in your ecosystem and 30-60% of your sales coming from serving your existing people for longer (aka back end marketing).

6️⃣ Be Careful of LONG Payment Plans

If a payment plan extends beyond the container of your course or program, it could result in a higher number of defaults.

Although long payment plans can be great for accessibility, you will need to monitor and measure the impact they have on both cash flow and payments. 

7️⃣ Ensure You Follow Up

It is important that you kindly and firmly follow up on missed payments, especially in circumstances where you have delivered access to your curriculum IP and hard cost services.

You DESERVE to be compensated for your IP and work, and it is your right to be paid. Treat it as such.

8️⃣ Prepare Templated Responses for Difficult Situations and Keep at Arm’s Length

Ensure that you have templated responses you can draw from for common difficult situations, and then personalise as needed.

It can be difficult to deal with every missed payment circumstance individually, both energetically and from a time management perspective.

As much as possible, also try to have someone else (even a customer service VA you employ for an hour or two a week) deal with these requests, as they can be energetically draining.

9️⃣ Lead With Kindness

Know that most people aren’t intentionally missing payments, and most times it is simply a card error, funds oversight or short term cash crunch.

Lead with kindness, but also ensure that you don’t get walked over.

You have delivered a product or service and both you and your student have made a mutual commitment; as long as you have upheld your end it is fair and okay to require that your student uphold theirs.

🔟 Incentivise Pay in Full Payments

Wherever possible, incentivise pay in full payments.

The time and energy cost of managing payment plans at scale is an expense for your business, and should be minimised wherever possible.

BONUS! Understand the Dunning Kruger Effect

The Dunning Kruger effect is a cognitive bias that states that the less you know, the more you overestimate your ability.

It’s very relevant to online education because usually when someone purchases from you, they are excited and likely NOT fully aware of the path they need to go on.

Once they start, it will begin to feel hard and heavy, and it’s only once they have trodden the path that their ability and wisdom will increase and they will start to feel confident and competent.

You need to factor this happening INTO your curriculum flow, because otherwise (and sometimes, even with measures in place) you WILL get refund requests or missed payments due to disengagement a month or three into your course or program. 

Managing missed payments as a course creator can feel cumbersome, time consuming and sometimes energetically tough as an online business owner, but keeping your cash flow in check is critical to the health of your business. 

Payment plans are NOT subscriptions that you can cancel, and from a student/client perspective it is important that this is normalised in our industry.

Just as it SHOULD be expected that course creators and coaches deliver with excellence on their side, similarly it should be expected and normalised that those purchasing IP products and services keep their mutually agreed commitments. 

Implementing some or all of these tips can assist with managing this sometimes sensitive issue in your business, and we hope that it is helpful. 

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If you enjoyed this episode and the Lifestyle Business Sweet Spot podcast generally, I have a favour. Please take two minutes to subscribe, and to write a rating and a review. You can do that on Apple Podcasts right now by clicking here. If you are an Android user, you can follow the podcast on Spotify here. Those actions will help the podcast reach more people, and I would be truly grateful. Thank you so much.

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