"Selling on installments increases sales" — everyone knows that. But many people never do the real math of an EMI business: how long the money stays tied up in the market, how many defaults it takes to wipe out the profit, and what pressure it puts on cash flow. In this article we will look at the whole thing with a simple example.
The basic structure of an EMI sale
An EMI sale usually has three parts:
- Down payment — what the customer pays on the day of sale
- Installments — the remaining amount split over several months
- Installment charge — the extra amount on top of the cash price for buying on installments (varies from shop to shop)
An example (the numbers are only for illustration)
Suppose you bought a phone for 18,000 taka and sell it for cash at 20,000 taka. On installments you price it at 22,000 taka — a 6,000 taka down payment, and the remaining 16,000 taka over 8 months at 2,000 each.
| Cash sale | Installment sale | |
|---|---|---|
| Money in hand on the day of sale | 20,000 | 6,000 |
| Total income (if all installments are paid) | 20,000 | 22,000 |
| Profit (after purchase price) | 2,000 | 4,000 |
| Time for the money to fully come back | Immediately | 8 months |
On paper, the installment profit is double. But notice — on the day of sale your 18,000 taka phone has gone, and only 6,000 has come in. 12,000 taka is tied up in the market, and it will come back over 8 months.
Risk: what happens when one customer defaults
Suppose the customer pays 3 installments and then stops. You have received 6,000 + 6,000 = 12,000 taka, while the phone's purchase price alone was 18,000. That is a 6,000 taka loss — and this one default can wipe out the entire profit of several successful installment sales.
So the most important thing in an EMI business is keeping the default rate low. Ways to reduce it:
- Phone lock: if the installment isn't paid, the phone won't work — this is the most effective pressure. (Device Locker)
- A higher down payment: when more of the customer's own money is in it, they don't walk away easily, and your risk is lower too.
- Guarantor and NID: when identity is confirmed, it's easier to stay in contact.
- Reminders: remind customers of installments they might forget, in advance. (The role of reminders)
- Live location: even if the customer disappears, you know where the phone is. (Live Location)
Cash flow: the more installments grow, the more capital you need
With every installment sale, part of the money goes out into the market for several months. So if you suddenly increase installment sales a lot, the money for buying new stock can run short. As a rule:
- Every month, check how much money in total is tied up in installments in the market.
- Compare how much was supposed to come in from installments each month with how much actually came in.
- Make new installment sales in a way that leaves cash in hand for supplier payments.
More on cash flow: Cash flow management for a mobile shop.
Which customers to give installments to
- An old customer who paid on time before — the safest.
- Customers with a permanent address and a source of income.
- The more down payment they're willing to pay, the better.
How software helps
Handling one or two hundred installment customers in a ledger is almost impossible. In the installment feature, every agreement, schedule, collection and due is kept separately; the defaulter report shows who is falling behind; and every collection is added to the accounts immediately. So you always know how much money is in the market and how much is supposed to come in.
Final word
EMI is a powerful business model — as long as the risk is under control. With rules, a phone lock and clear accounts, installments can become the biggest growth engine of your business. See a demo of how PhoneSell Pro makes this easy.
