A payment plan agreement is a legal form that establishes how one person (the debtor) will pay back another person (the creditor). With the contract, the parties can agree to have the debtor pay a set amount on a monthly, bi-weekly, or weekly basis until the debt is paid off. The debt can be in the form of an outstanding balance, services that were rendered to the debtor, property that was purchased, or another unpaid offering. Payment plans are often utilized by businesses that issue large invoices to provide their clients with a less straining means of collecting payment.

Contents What to Include? Optional Sections How to Create a Payment Plan (4 Steps) Step 1 – Discuss the Options Step 2 – Complete the Agreement Step 3 – Sign it Step 4 – Receive Payments How to Write

What to Include?

The complexity of a payment plan is dependent on the needs of the creditor and the level of trust that exists between the parties. At a bare minimum, a payment plan should include the following provisions:

• DATE – The date the agreement is being completed should be clearly listed at the top of the document.
• PARTIES – The names and addresses of the debtor and creditor.
• AMOUNT – The balance ($) the debtor owes to the creditor. Interest rate, down payments, and payment instructions should also be included.
• REASON FOR BALANCE – Why the debtor owes money to the creditor.
• REPAYMENT – How the debtor will go about paying off the balance (e.g., monthly payments).
• DEFAULT – What happens in the event the debtor stops making payments towards the balance.
• SIGNATURES – The agreement must be signed by the creditor and debtor in order to be legally binding.

Optional Sections

To create a more robust and effective agreement, the following conditions can be added to the agreement:

• DISCOUNTED BALANCE – A condition that allows the creditor to reduce the total balance the debtor is required to pay.
• LATE PAYMENTS – Establishes the consequences or fees should the debtor miss or underpay on a payment.
• PREPAYMENT – Used for regulating (or outright denying) the debtor’s option to pay the balance early.
• CO-SIGNER – The creditor can require high-risk debtors to have a co-signer on the agreement.

How to Create a Payment Plan (4 Steps)

Step 1 – Discuss the Options

Both the creditor and debtor should go over payment options to identify a reasonable, fair payment process. The type of balance owed by the debtor often influences the terms offered. Unless the payment plan is a friendly agreement between individuals that know each other well, it’s suggested that the creditor collect interest on the balance.

Step 2 – Complete the Agreement

The provided payment plan agreement is three (3) pages long, with a total of twelve (12) sections. Before filling in the fields, the creditor should read through each condition to ensure it meets their needs. Additional clauses or information can be added in section 11 “Additional Terms & Conditions.” If the creditor would like to attach an addendum or disclosure to the agreement, the name of the added documentation (and page number) should be written in section 11.

See the How to Write section for a step-by-step guide to completing the agreement.

Step 3 – Sign it

To finalize the contract, it will need to be signed by both the creditor and debtor. If a co-signer will be involved, they will need to sign the document as well. In addition to the signatures, the parties will need to print their name legibly and enter the date (mm/dd/yyyy) they signed the contract.

The parties can go about signing the document by either 1) uploading the completed document to eSign and digitally signing the form, or 2) printing the document and signing the document by hand (with black or blue ink).

Step 4 – Receive Payments

The majority of payment plans require the debtor to provide banking or credit card information to enable automatic payments. This is highly recommended, as setting up auto payments improves consistency and reduces the amount of effort involved in collecting payments. If auto payments are not set up, the debtor will be obligated to make consistent payments using the method outlined in the agreement. Once the debtor has made their last payment (i.e., finished paying off the loan), they will be relesed from the obligations of the contract.

How to Write

• Step 1 – Creditor & Debtor Info
• Step 2 – Balance
• Step 3 – Discounted Balance
• Step 4 – Repayment Plan
• Step 5 – Late Payment
• Step 6 – Prepayment
• Step 7 – Co-Signer
• Step 8 – State Law
• Step 9 – Additional Terms (Optional)
• Step 10 – Signing

Download: PDF, Word (.docx), OpenDocument

Step 1 – Creditor & Debtor Info

• Field 1 – The date (mm/dd/yyyy) the creditor is filling out the agreement (most likely the current date).
• Field 2 – The full name of the creditor.
• Fields 3 to 6 – The address of the creditor.
• Field 7 – The debtor’s full name.
• Fields 8 to 11 – The debtor’s address.

Step 2 – Balance

• Field 12 – The full amount ($) of the balance. Enter the value word-for-word (e.g., “Five-thousand”).
• Field 13 – The full amount of the balance as a number (e.g., “$5,000.00”).
• Section 14 – Check one of the four (4) boxes pertaining to the reason for the balance. If the balance is the result of a product, service, or “Other,” describe the balance in detail on the line provided.

Step 3 – Discounted Balance

• Section 15 – Select the appropriate box to indicate whether or not the debtor will receive a discounted balance, or if they’ll be required to pay the full amount.
• Field 16 – If the balance is discounted, enter the new total balance the debtor will be required to pay. Enter this value word-for-word (e.g., “Four-thousand, five-hundred”).
• Field 17 – If the balance is discounted, enter the balance as a number (e.g., “$4,500.00”).

Step 4 – Repayment Plan

• Section 18 – Select one (1) of the checkboxes to indicate whether or not the debtor will be obligated to make a down payment towards the balance.
• Field 19 – If a down payment is required, enter the amount ($) of the down payment here.
• Section 20 – Select one (1) of the checkboxes to indicate whether or not the debtor will be required to pay interest on the balance.
• Field 21 – If interest is required, enter the amount of the interest in words (ex: “Five”).
• Field 22 – The amount of interest as a number (e.g., “5”).
• Section 23 – Indicate whether the debtor will be required to make monthly, bi-weekly, weekly, or custom payments. For the option selected, enter the date of the first payment, the amount that the debtor will need to pay, the day of the month it will need to be paid (if “Monthly” is selected), and the date that the last payment will be due.
• Field 24 – Describe how the debtor should go about making payments to the creditor. E.g., “Make ACH payments to the following checking account: [###].”

Step 5 – Late Payment

• Section 25 – Select one (1) of the checkboxes to indicate whether or not the debtor can make late payments.
• Field 26 – If the debtor can make late payments, enter the number of days the debtor has to pay the overdue balance (in addition to the late fee).
• Field 27 – The amount ($) of the late fee.

Step 6 – Prepayment

• Section 28 – Check whether or not the debtor will be required to pay a penalty if they pay off the balance early.
• Field 29 – If they are not permitted to pay off the debt early, enter the penalty fee here.

Step 7 – Co-Signer

• Section 30 – Choose whether or not the debtor will have a co-signer.
• Field 31 – If the debtor will have a co-signer, enter the full name of the co-signer here.

Step 8 – State Law

• Field 32 – Enter the name of the state the creditor lives in.

Step 9 – Additional Terms (Optional)

• Field 33 – The creditor can include any other terms and conditions here if they wish.

Step 10 – Signing

• Section 34 – The debtor will need to sign their name (red highlight), print their name, and enter the date (mm/dd/yyyy) they signed the agreement.
• Section 35 – If a co-signer will be involved, they will need to complete the same steps listed in Section 34.
• Section 36 – The creditor will need to complete the same steps as listed in Section 34.