How to Start A Layaway Program in 4 Steps

three stacks on coins against a dark background: how to start a layaway program

As a retailer, you want to offer customers as many payment options as possible. Some people might come to your store with cash in their wallets, while others may pull out credit or debit cards at the register. Still, other shoppers may prefer a buy now, pay later plan to buy on credit but with delayed or no interest payments. There are customers who may prefer a layaway option, which can be used to pay for items in installments without having to pay interest. Here’s an overview of how layaway purchases work and steps for starting online layaway programs or an in-store layaway service.

What is a layaway program?

A layaway program is a retail payment model in which customers pay for merchandise in several installments. It may include certain service fees, such as storage for your purchase. It’s possible to offer a layaway program in your brick-and-mortar shops as well as extend the perk to your ecommerce shops. 

A layaway plan starts with a down payment—typically a percentage of the total purchase or a dollar minimum—which reserves an item for future acquisition. Then, under the terms of the store’s layaway agreement, the customer makes regular, typically interest-free layaway payments until the item is paid in full. After the final payment, the customer takes possession of the item. Or, in the case of an online layaway purchase, the item is shipped to the buyer.

Layaway plans have been around since the Great Depression, when many shoppers lacked the funds to make large purchases. Retailers, also feeling the economic pinch, began allowing purchases on an installment payment plan as a way to retain customers. Layaway plans have existed ever since, although they’ve steadily given way to credit-based options like credit cards and buy now, pay later (BNPL) programs, which unlike traditional layaway programs may require credit checks. 

Advantages of a layaway program

The layaway model lets customers purchase items even if they don’t have the cash on hand to pay all at once. However, unlike a financing plan or a credit card purchase, layaway plans usually don’t extend credit to the purchaser and, therefore, do not affect their credit scores. 

The buyer must make regular installment payments if they wish to eventually own the item outright. Otherwise, they risk losing the item (because it’s returned to stock) and their down payment. 

Layaway plans tend to appeal to people with low credit scores or cost-conscious shoppers who don’t want to pay interest on credit card purchases.

How to start a layaway program

  1. Research legal considerations
  2. Create layaway agreements with your customers
  3. Choose a payment and accounting system
  4. Market your layaway program to shoppers

Offering layaway merchandise may give you an edge over competitors that require full payment at the time of purchase. You can also offer layaway plans on key times, such as the fall lead-up to the holiday season, when retail shopping peaks. 

Here are the four steps to starting a layaway program:

1. Research legal considerations

Few laws govern layaway plans. Still, consult guidance from the Federal Trade Commission, which encourages merchants to review the Federal Trade Commission Act and the Truth in Lending Act. 

The Truth in Lending Act specifies the kinds of disclosures merchants must make when entering financial contracts with customers, such as informing them before running a credit check. Your specific jurisdiction may further regulate layaway programs. If you’re in the US, consult your state’s attorney general’s office for further guidance.

2. Create layaway agreements with your customers

When you start a layaway program, you and your customers enter into a contract governing the layaway purchase. As long as you adhere to federal, state, and local contract laws, you have flexibility when drafting the terms of the agreements. Some of the areas your layaway agreement should cover include:

  • Layaway plan schedule. The schedule covers all installments, from the down payment to the final payment. You can set the frequency of the repayment schedule, whether that’s weekly, monthly, or otherwise. Clearly communicate the schedule to your customers so there are no surprise due dates that could lead to dissatisfied customers and lost business.
  • Service and cancellation fees. You may choose to implement service fees—also called program fees—to cover the administrative costs of your layaway program, which might include storage space and labor costs. If a customer stops making payments, you may choose to offer a full refund, or a refund minus a cancellation fee.
  • Adjustable terms. You have the option of offering flexible payment and pricing terms to purchasers. For instance, you could offer a lower total price to customers who pay off their purchase in three months rather than six.
  • Return policy. You may choose to offer a different return policy for layaway items than for traditional purchases. For example, you might offer free returns within 30 days for an item purchased in full but charge a restocking fee for a returned item bought on layaway. This is because items may lose their retail appeal during the layaway period, making them harder to sell once returned (think of a clothing retailer that sells seasonal items).

3. Choose a payment and accounting system

A must-have is a checkout and accounting system that lets you handle layaway payment installments. Shopify POS and Shop Pay, for example, let you accept partial payments for layaways. The item is marked as committed (meaning it’s no longer available for sale), ensuring it’s reserved for the intended recipient. The Shopify POS system works for both in-store and online retail sales.

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4. Market your layaway program to shoppers

Once your layaway program is set up, get the word out. If you have a physical location, consider placing signage on the sales floor letting shoppers know about your in-store layaway option. If you sell online, clearly mark the layaway option on product pages within your ecommerce site and on your checkout page.

Layaway vs. buy now, pay later

Buy now, pay later (BNPL) is a lending system that lets customers immediately take home an item but pay for it later in installments. BNPL typically involves a soft credit check that doesn’t impact a customer’s credit score, so you can buy on credit but with delayed or no interest payments, depending on payment terms. 

Market trends show BNPL is increasingly popular. And many retailers connect BNPL—despite its high fees for merchants—to customers spending additional money in their stores. Here’s a rundown of the similarities and differences between layaway and BNPL programs:

Layaway vs. BNPL: How they’re similar

Layaway and BNPL are payment options that differ from standard purchase methods like cash, personal checks, credit cards, and debit cards. Unlike these traditional purchase methods, layaway and BNPL enable shoppers to buy items without paying the total purchase amount at the time of the sale, and involve entering into a purchase agreement with a retailer.

Layaway vs. BNPL: How they’re different

Laway and BNPL operate on two different economic models. As a customer in a layaway program, you directly pay the store money, starting with a down payment. You then keep paying installments until you’ve reached the total purchase price, at which point you receive your item. The terms of these payment plans are set by the stores.

BNPL, by comparison, is a consumer credit system that works more like a credit card. This means it will involve debt hanging over a customer until the balance is paid in full. 

As a customer, you start by agreeing to an instant credit check with a BNPL lender, such as Affirm, Afterpay, Sezzle, PayPal, Klarna, or or Shop Pay Installments. The lender then fronts the complete purchase price to the merchant, with the customer steadily paying off the debt to the BNPL lender in installments. Typically, payments are interest-free for a given period—often weeks or months—but beyond this point may be subject to interest plus a nonrefundable fee, much like a credit card balance.

How to start a layaway program FAQ

How much do customers typically have to put down for layaway?

Store owners set the down payment amount for a layaway purchase. Many retailers, including Burlington, Marshalls, and Hallmark, charge a down payment of 10% to 20% of the purchase price.

What happens if a customer cancels their layaway plan or misses a payment?

Stores set their own policy, in accordance with federal, state, and local contract laws, about missed layaway payments. A merchant may choose to offer full or partial refunds on abandoned layaway agreements or impose nonrefundable cancellation fees—particularly when they fear abandoned layaway items won’t sell, causing them to lose additional money.

How should a business define the payment terms for a layaway program?

Most businesses choose to start layaway plans with a mandatory down payment, usually in the 10% to 20% range of an item’s retail price. From there, they may require monthly or quarterly installment payments, and they may offer better terms for faster payments.