Offering layaway or a payment plan

A buyer wants the watch and can't pay for all of it today. Layaway is the old answer: they pay in instalments, you hold the watch, and it's theirs when the last payment lands. Done with clear terms, it closes sales that would otherwise walk. Done on a handshake, it produces the worst kind of argument, over an expensive object and money already paid.

Layaway is not the same as financing

Keep the distinction clear:

• Layaway. You hold the watch while the buyer pays in stages. Nothing is handed over until it's paid.
• A payment plan after delivery. The buyer has the watch and owes you money, which is lending, with all the risk and possibly rules that come with it.
• Third-party financing, where a finance company pays you and deals with the buyer's instalments.

For most dealers, only the first is worth doing themselves. Handing over a watch before it's paid for turns a sale into an unsecured loan against an easily resold object.

Write the terms down

Before taking the first payment, put the following in writing:

• The watch, identified by reference and serial, with its condition noted.
• The total price, and whether it's fixed for the duration.
• The deposit, the schedule, and the final date.
• Who holds the watch, and that it stays with you until paid in full.
• What happens on a missed payment, including any grace period.
• What happens on cancellation: what's refundable, what isn't, and any fee.
• Insurance, and that the watch stays covered while you hold it, as the insurance article covers.

The paperwork article covers the documents, and a lawyer should look over your standard layaway terms once, before you use them repeatedly.

Check the rules before you start

Layaway and consumer credit are regulated in some places, and the rules can cover disclosures, what you may keep on cancellation, and how deposits are held. Rules differ by state, and selling to a buyer in another state can bring their rules into play.

Ask a lawyer or your state's consumer protection resources before offering it as a standing option. This is one area where copying another dealer's terms is not a safe shortcut.

Count what it costs you

A watch on layaway is stock you can't sell. The money arrives slowly while the watch sits, so the deal is worth less than the same sale for immediate payment.

• Carrying cost applies for the whole period, as the carrying cost article explains.
• Your capital is committed and can't fund another purchase, which the cash flow article covers.
• Price risk sits with you if the market moves while you wait.

Run the deal in the max buy calculator with a holding period that matches the plan, not the usual one. If the margin only works at speed, layaway on that watch isn't a good idea.

Keep the money straight

Instalments on an unfinished sale aren't the same as a completed sale, and your records should show that clearly: what's been received, against which watch, and what's still owed. Your accountant can tell you how to treat it for tax, which the income tax article touches on. Never spend a deposit as though the sale has completed, since you may have to give it back.

Keep the buyer engaged

Long plans fade. A short message when each payment lands, with a note of what's left and the final date, keeps the buyer committed and reduces abandoned plans. It's the same principle as the closing article: silence is where deals go to die.

When to decline

• The watch is in demand and would sell quickly for full payment now.
• The plan runs too long for a market that moves.
• The buyer wants the watch up front, which is lending, not layaway.
• You can't write clear terms or aren't sure of your local rules yet.