Lay-by is an old way to pay that still suits many shoppers. It lets a customer pay off an item over time without taking on credit. Some online stores offer it alongside card payments and digital wallets.
If you plan to offer lay-by, the Australian Consumer Law sets rules you must follow. They cover the written agreement, cancellations, fees and refunds. This guide walks through those rules in plain terms for online sellers.
What counts as a lay-by agreement
The ACCC page on lay-by agreements describes a lay-by as a contract where the consumer pays in instalments. The consumer only receives the goods after paying the full price. Lay-by rules are part of the Australian Consumer Law, which is Schedule 2 of the Competition and Consumer Act 2010.
Consumer Affairs Victoria guidance on lay-bys adds more detail on the definition. An agreement is a lay-by if the consumer pays in at least three instalments, or two if it is called a lay-by. Any deposit counts as an instalment.
This means an online offer to “pay in weekly instalments, ship when paid” can be a lay-by. NSW Fair Trading gives the example of a Christmas hamper paid off weekly. The label you use on your website does not change what the deal really is.
The written agreement
A lay-by agreement must be in writing. NSW Fair Trading says it must be transparent, which means plain language that is legible and clearly presented. You must give the customer a copy.
The agreement must set out all the terms and conditions. That includes any termination charge. For an online store, an emailed copy sent when the customer signs up is a practical way to meet this.
Think about what a customer needs to know before they commit. That means the price, the instalment amounts and dates, the cancellation charge and when the goods will be sent. Your lay-by page and checkout should show the same details.
Standard form lay-by contracts may also be covered by the unfair contract terms rules in the Australian Consumer Law. Avoid one sided terms that give your business rights the customer does not have. If in doubt, have a lawyer review your terms before launch.
When a customer cancels
A customer can cancel a lay-by at any time before they receive the goods. When that happens, you must refund the deposit and all other amounts paid. You can keep back the termination charge set out in the agreement.
If the customer has paid less than the termination charge, they must pay the difference. Consumer Affairs Victoria says the shortfall can be recovered as a debt. It also says you cannot claim damages or other remedies on top of that.
The ACCC and Consumer Affairs Victoria guidance does not set a timeframe for refunds. Even so, paying refunds promptly avoids complaints. Set up a simple refund process before you take your first lay-by order.
How much you can charge for a cancellation
There is no set amount or percentage for a termination charge. The ACCC says it cannot be more than your reasonable costs in relation to the agreement. NSW Fair Trading says you should be ready to justify the charge.
NSW Fair Trading uses the example of a winter coat cancelled in August. The charge could take into account any need to discount the coat. That shows how the timing of a cancellation can affect your real costs.
You also cannot charge a cancellation fee in every case. Consumer Affairs Victoria says no fee applies if your store failed to meet its side of the agreement, for example by delivering late. No fee applies if your store cancelled either.
When your business can cancel
Your business can only cancel a lay-by in limited situations. The three set out by the ACCC are listed below. Outside these, you are bound to complete the agreement.
- The customer has broken the agreement, such as by not paying instalments
- Your business is no longer trading
- The goods are no longer available for reasons outside your control
Consumer Affairs Victoria makes the last point clear. It cannot be because you chose to withdraw the product. If you cancel because of a missed payment, you must refund what has been paid, less any cancellation fee.
Price changes and warranties
Prices change, especially during sales. Consumer Affairs Victoria says the customer generally pays the price in the agreement unless the store agrees to the new price. If the price drops, the customer may cancel, though a fee may apply.
Warranties work a little differently with lay-by. Consumer Affairs Victoria says a warranty period starts when the customer finalises the contract and takes ownership. It does not start when the lay-by began.
Lay-by warranties also apply in addition to the automatic rights under the Australian Consumer Law. So your usual obligations for faulty goods still apply once the item is handed over. Make sure your returns process treats lay-by orders the same as others.
Running lay-by smoothly on an online store
Keep a clear record of each lay-by, including payments, dates and the agreement sent. Your ecommerce platform may need an add on for this. Test the payment reminders and the final shipping step before you open it to customers.
Hold the goods aside once a lay-by starts. Selling the last unit to someone else and then cancelling is not one of the allowed reasons. Your stock system should mark lay-by items as reserved.
Train whoever handles customer messages on these rules. Short sessions work well, and our list of team building ideas that do not require a lot of time has ways to fit learning into a busy week. Staff should know when a fee applies and when it does not.
Lay-by also affects cash flow, as money arrives in parts and stock sits on the shelf. Plan for that gap before you launch. Your accountant can help you work out how much stock you can afford to hold.
Promoting lay-by to customers
Lay-by can be a selling point in your marketing. Mention it on product pages and in campaigns, and link to the terms each time, using the elements of an effective banner ad design to keep display ads clear. Never present it as interest free credit or hide the cancellation fee.
Local promotions can work well for lay-by, especially before holidays. The guide to geo targeting to reach local audiences covers how to aim ads at nearby shoppers. If you also run a shopfront, professional sign installation can help in store customers notice the offer.
Frequently asked questions
Is buy now pay later the same as lay-by?
Not usually. With lay-by, the customer only receives the goods once the full price is paid. Services that send the goods first and collect payments later work differently, so check which rules apply to them.
Can I refuse to refund a customer who cancels?
No. You must refund all amounts paid, less the termination charge in the agreement. That charge cannot be more than your reasonable costs.
Do I have to put the lay-by agreement in writing?
Yes. The agreement must be in writing and include all terms, including any termination charge. You must also give the customer a copy.
Are lay-by rules the same in every state?
The lay-by rules sit in the Australian Consumer Law, which applies nationally. Each state and territory has a consumer protection agency that gives guidance and handles complaints. Check the guidance where you trade, as processes can differ and change.
This article is general information only and is not legal advice. Laws and processes can differ between states and territories and they change over time. Speak with a qualified lawyer about your own business before relying on it.