Is a payment plan legally binding?

A signed payment plan agreement is a contract. If the debtor fails to make a payment as agreed, you can use the agreement as evidence of the debt and their acknowledgement of it. The acknowledgement also resets the limitation period in most Australian jurisdictions.

Should I stop interest while a payment plan is in place?

This is a commercial decision. Some creditors waive interest as an incentive for the debtor to enter into and maintain the plan; others continue to accrue interest on the outstanding balance. Whichever you choose, document it clearly in the agreement.

What happens if the debtor misses a payment plan instalment?

The agreement should specify that if any instalment is missed, the full outstanding balance becomes immediately due and payable — this is called an 'acceleration clause'. Without it, a debtor who misses an instalment may argue they only owe the missed instalment, not the full balance.

When should I involve a debt recovery agency rather than offering a payment plan?

If the debtor has already missed multiple promises to pay, a payment plan may buy them more time without solving the problem. Refer to Merion where the debtor is consistently evasive, where the amount is significant, or where you have no confidence a plan will be honoured.

Payment Plan Template — Free Download

Use this template when a debtor has acknowledged the debt and you are prepared to accept payment by instalments. Ensure it is signed by both parties and keep the original. If the debtor misses any instalment, refer the remaining balance to Merion immediately.

Payment Plan Agreement — Template

PAYMENT PLAN AGREEMENT

This Payment Plan Agreement ("Agreement") is entered into as at [Date] between:

Creditor: [Your Business Name], ABN / ACN [Your ABN/ACN], of [Your Address] ("Creditor"); and
Debtor: [Debtor Business Name], ABN / ACN [Debtor ABN/ACN if known], of [Debtor Address] ("Debtor").

BACKGROUND

A. The Debtor owes the Creditor the amount of $[Total Amount Owed] (inclusive of GST) in respect of [description of debt, e.g., "invoice number [X] dated [Y] for [description of goods/services]"] ("the Debt").
B. The parties agree that the Debtor shall pay the Debt by instalments in accordance with the terms set out in this Agreement.

AGREED TERMS

1. Acknowledgement of Debt
The Debtor acknowledges and agrees that the Debt of $[Total Amount Owed] is due and owing to the Creditor and is not disputed.

2. Payment Schedule
The Debtor agrees to pay the Debt by the following instalments:

Instalment 1: $[Amount] due on [Date]
Instalment 2: $[Amount] due on [Date]
Instalment 3: $[Amount] due on [Date]
[Add further instalments as required]
Total: $[Total Amount Owed]

Alternatively, for regular weekly / fortnightly / monthly payments:
The Debtor agrees to pay $[Amount] per [week / fortnight / month] commencing on [Start Date] and continuing on the same day of each [week / fortnight / month] until the Debt is paid in full.

All payments are to be made by [EFT / cheque / other method] to:
Bank: [Bank Name] BSB: [BSB] Account: [Account Number] Account Name: [Your Business Name]
Reference: [Invoice Number / Debtor Name]

3. Interest
▢ Interest on the outstanding balance is suspended while the Debtor complies with this Agreement.
▢ Interest continues to accrue on the outstanding balance at [X]% per annum from the date of this Agreement until payment in full.

4. Default and Acceleration
If the Debtor fails to make any instalment on or before its due date, or breaches any term of this Agreement, the entire outstanding balance of the Debt shall, at the Creditor's election, become immediately due and payable without further notice. The Creditor may then take any steps it considers appropriate to recover the full outstanding balance, including engaging a debt recovery agency or commencing legal proceedings.

5. Costs
If the Creditor is required to take any action to enforce this Agreement, the Debtor shall be liable for all reasonable costs of enforcement, including debt recovery agency fees and legal costs.

6. Entire Agreement
This Agreement constitutes the entire agreement between the parties with respect to the repayment of the Debt and supersedes any prior oral or written agreements regarding the same. This Agreement does not affect the Creditor's rights under any other agreement between the parties.

7. Governing Law
This Agreement is governed by the laws of [State / Territory, e.g., Queensland / New South Wales / Victoria].

SIGNED AS AN AGREEMENT

Signed by the Creditor
Signature: _____________________________ Date: ___________
Full Name: ____________________________
Position: _____________________________

Signed by the Debtor
Signature: _____________________________ Date: ___________
Full Name: ____________________________
Position: _____________________________
Company (if applicable): ________________

How to use this template

Fill in all fields in square brackets before sending to the debtor.
Use the background section to identify the specific invoices or accounts that make up the debt — this prevents any later dispute about what the plan covers.
Choose the interest clause (section 3) that fits your commercial arrangement — suspending interest is often used as an incentive for the debtor to enter the plan, but continuing to accrue it maintains your contractual position.
The acceleration clause (section 4) is critical — without it, a debtor who misses an instalment may argue they only owe the missed payment. Keep this clause in.
Have both parties sign and exchange copies. Keep the original.
If any instalment is missed, act immediately — contact the debtor and, if there's no response within 48 hours, refer to Merion.

This template is provided for general guidance only and does not constitute legal advice. Have your solicitor review it before use, particularly the interest, default, and governing-law clauses, to ensure enforceability in your jurisdiction.

Payment Plan Template

How to use this template

Refer to Merion when the plan breaks down.