Most installment retailers in Pakistan decide the down payment (peshgi, or advance) by feel. The customer asks for a lower advance, the shopkeeper wants the sale, and the number lands wherever the negotiation stops.
That negotiation is the single most consequential one at your counter. The markup decides how much you earn if everything goes right. The advance decides how much you lose when it doesn't.
This guide covers the arithmetic — not opinions — so that you can set an advance policy by product category instead of by mood.
What peshgi actually buys you
It helps to be clear about what the advance is not. It is not your profit. Your profit is the markup, and it arrives slowly, across the whole tenure. The advance is simply the first and largest part of your own cost coming back to you on day one.
The advance does three things:
- It shrinks your exposure. Exposure is the part of your purchase cost still sitting in the customer's house, unpaid. A bigger advance means a smaller hole to fall into.
- It filters intent. A customer who can arrange PKR 20,000 today is demonstrating something that no verification form can tell you. The advance is the cheapest credit check available to you.
- It buys back your working capital faster. Every rupee collected upfront is a rupee you can put back into stock this month instead of next quarter.
The number that matters most is the first one. Let us measure it.
The two formulas that govern every installment sale
First, the monthly installment, where the advance is a percentage of the total installment price (the cash price plus your markup — this is the convention most Pakistani shops use, and you should state which convention you use on the agreement):
Second, and far more important, your exposure at any point in the plan:
Note what is not in that second formula: your markup. When a customer defaults in month three, you do not lose the profit you hoped for — you lose the cash you actually spent on the goods. Exposure is always measured against your wholesale cost, never against the installment price. Shops that measure the loss against the installment price scare themselves with a number that was never real.
A worked example: a PKR 130,000 plan, four different advances
Take a single, concrete deal and change nothing except the advance:
- Your purchase cost from the supplier: PKR 80,000
- Cash counter price: PKR 100,000
- Installment price with markup: PKR 130,000
- Tenure: 12 months
| Advance | Advance amount | Monthly installment | Your cost fully recovered by | Cash collected by month 3 | Exposure at month 3 |
|---|---|---|---|---|---|
| 0% | PKR 0 | PKR 10,833 | Month 8 | PKR 32,500 | PKR 47,500 |
| 10% | PKR 13,000 | PKR 9,750 | Month 7 | PKR 42,250 | PKR 37,750 |
| 20% | PKR 26,000 | PKR 8,667 | Month 7 | PKR 52,000 | PKR 28,000 |
| 30% | PKR 39,000 | PKR 7,583 | Month 6 | PKR 61,750 | PKR 18,250 |
Going from 0% to 30% advance cuts your month-three exposure by PKR 29,250 — on a single deal. Write twenty of these a month and the difference between a 0% policy and a 30% policy is roughly PKR 585,000 of your own money permanently at risk on the street.
The monthly installment barely moves. The customer's monthly burden drops from PKR 10,833 to PKR 7,583. That is a real difference to a household, but it is a much smaller swing than the exposure change — which means the advance is the cheapest lever you have. You are buying a large reduction in risk for a modest change in affordability.
Cost recovery arrives early, profit arrives late. Even at a 0% advance, your PKR 80,000 is back by month 8. Months 9 to 12 are almost entirely profit. This is why a default in month 10 is an irritation and a default in month 2 is a wound — and why your follow-up intensity should be highest in the first quarter of every plan, not spread evenly across it.
Setting the advance against what a default actually costs you
The advance should be at least large enough that if the customer stops paying at the point they usually stop paying, you are not underwater after recovering the goods.
So estimate three numbers for your own shop:
- Typical default month. When do your defaults actually happen? For most shops it clusters in months 2 to 4.
- Resale value of the returned unit. What will you actually get for it, second-hand, after it has been used for three months?
- Recovery cost. Visits, phone time, transport, and the staff hours spent chasing. Put a real rupee figure on it.
Then the rule is simply:
Run the PKR 130,000 example through it. At a 20% advance, exposure at month 3 is PKR 28,000. If a three-month-old unit of this kind resells for PKR 55,000 and recovery costs you PKR 5,000, you clear PKR 50,000 against PKR 28,000 of exposure — comfortable. At a 0% advance, exposure is PKR 47,500 against the same PKR 50,000 net resale, and you are one scratch on the casing away from a loss.
Now apply the same test to a category with poor resale — furniture, custom-made goods, anything without a serial number and a second-hand market. The resale side of that inequality collapses, and the only way to keep it true is a materially higher advance. This is why a single shop-wide advance percentage is almost always wrong. Resale value, not customer sentiment, should set your floor.
Why advance and tenure must move together
A longer tenure lowers the monthly installment, which is exactly why customers ask for it. But a longer tenure also keeps your cost outstanding for longer and gives the customer more months in which their circumstances can change.
Stretch the same PKR 130,000 plan from 12 months to 24 and the monthly drops attractively — but your cost recovery date pushes deep into the plan, and your exposure at month 3 is far worse at every advance level. If you are going to grant a longer tenure, raise the advance to compensate. Treat them as one decision with two dials, never as two separate concessions.
When to deliberately accept a lower advance
An advance policy is a floor, not a wall. There are defensible reasons to go below it:
- A customer with a completed history at your shop. Someone who has paid off a previous plan on time has given you better information than any advance could. A reduced advance is a reasonable loyalty reward, and it is a cheaper one than cutting your markup.
- A strong, verified guarantor with no other commitments to you. This genuinely transfers risk — provided you have checked it properly. See our guide on verifying a guarantor who will actually pay.
- A serialised, high-resale unit. A tracked IMEI or engine number on goods with an active second-hand market raises the resale side of the inequality above, so the exposure you can safely carry is higher.
What is never a good reason: competitive pressure alone. If the shop across the road is winning customers on a 5% advance, they are not beating you on pricing — they are accumulating a risk position whose cost arrives six months later.
Make the policy visible, not remembered
The reason advance policies drift is that they live in the owner's head while the sale happens at the counter, often with staff who want to close. Write the floor down by product category, put it where the plan is created, and record the advance taken against every account so you can audit the pattern monthly.
If a category's defaults are rising, the first place to look is not your recovery effort. It is whether the advances on those plans quietly slipped below the floor three months ago.
Decide the advance before you discuss the monthly
Customers negotiate the monthly installment because that is the number they feel. You should decide the advance first, from resale value and tenure, and let the monthly fall out of the arithmetic — not the reverse.
You can test any advance, tenure and markup combination on our free Installment Calculator before you commit to it at the counter. And if you want every plan's advance, exposure and payment history held in one place instead of a register, start free on Markaz Flow or read how to work out your markup and profit margins first.