Selling on installments and legal considerations

Selling on installment can boost your turnover, but it entails legal obligations: statutory limits apply to interest, you may not charge usurious interest to consumers, and you would be wise to protect yourself against non-payment with, for example, a retention of title clause. Installment purchasing is regulated by law and requires a solid sales agreement. Below, you can read what installment purchasing is and which legal points you must not overlook.

What is installment purchase?

Installment purchase is an agreement in which the customer receives the product immediately but pays the purchase price in installments. The customer therefore has immediate possession of the product and is given more time to pay. This type of agreement is codified in the Dutch Civil Code. A special variant is hire purchase, where ownership only transfers after payment of the final installment.

For the seller, it is a way to boost sales and appeal to a wider audience; for the customer, it is a way to purchase something without paying the full amount immediately.

Are you allowed to charge interest on hire purchase?

Yes. You may charge interest on the installments, or conversely, no interest at all to maximize sales stimulation. If you choose to charge interest, please observe the legal limits:

• Maximum credit fee: the level of interest and additional costs for consumers is subject to a statutory maximum. Usury is prohibited.
• Collection costs: passing on collection costs is also subject to rules, especially for consumers.
• Duty to provide information: additional requirements apply to consumer credit, such as clear information regarding the total costs.

The statutory maximum credit charge may change over time; check the current rate before setting rates.

How do you protect yourself against non-payment?

With installment sales, you run the risk of non-payment. You can limit that risk in various ways:

• Credit check: assess the customer's creditworthiness in advance.
• Retention of title: normally, ownership passes to the buyer immediately, but with a retention of title clause , you agree that this only happens after the final installment. If the customer fails to pay, you can reclaim the product.
• Pledge: a pledge provides you with additional security and priority in recovery.
• Factoring: by transferring your receivables, you shift (part of) the payment risk.

Frequently asked questions about selling on installment

What is the difference between installment purchase and hire purchase?

With a standard hire purchase, ownership is in principle transferred immediately, while the price is paid in installments. With hire purchase, you remain the owner until the last installment has been paid. Hire purchase therefore naturally offers you more security, but also has its own legal requirements.

Am I allowed to retrieve a product if the customer doesn't pay?

This is possible if you have made a valid retention of title and the customer is in default. Without such a reservation, the product is already the property of the buyer and reclamation is much more difficult. However, follow the correct steps when invoking this to avoid acting unlawfully yourself.

Do stricter rules apply to sales to consumers?

Yes. For consumers, the rules for consumer credit apply, among others, with maximum limits on interest and costs and additional information obligations. Between entrepreneurs, there is more freedom, but even then, a clear agreement pays off.

Have an installment sales agreement drawn up

A good sales agreement protects your interests and clearly regulates what happens in the event of non-payment. Given the legal requirements and risks, it is wise to have it drafted by a lawyer. The lawyers at MKB Juristen draft an agreement tailored to your situation and assist you with debt collection in the event of non-payment. View our expertise in contract law or schedule a no-obligation intake.